If you need an alternative document loan, you will have to meet certain requirements. First, you will need to find a lender that is even willing to write this type of loan. After the housing crisis, most lenders pulled out of the stated income/stated asset arena. They didn’t want to take the chance of dealing with defaulted loans.
Today, though, more and more lenders are willing to write stated assets loans. Just how do you increase your chances of approval on one? Keep reading to find out more.
Have a High Credit Score
First, you need a high credit score. If you want a lender to take your word on your income or assets, you have to give them reason to do so. Think of the difference between a borrower with a high credit score and one with a low credit score.
The borrower with the high credit score probably manages his money correctly. He doesn’t overextend his credit or pay his bills late. Lenders look at him as a good risk. The borrower with a low credit score may not manage his money correctly. He may overextend his credit or pay his bills late. His credit history is typically filled with negative information that makes a lender wary of giving him a loan.
If you think about the risk of a lender offering a stated income or stated asset loan, they are taking your word for what you make or have. They take a much larger risk doing this for a borrower that doesn’t have a decent credit history. Making sure you have a high credit score before you apply for this type of loan can increase your chances of approval.
Have a Low Debt Ratio
A low debt ratio goes hand-in-hand with a high credit score. The more debt you have outstanding, the higher the risk of default you pose to a lender. You may find that it’s harder to find a willing lender when you have a high debt ratio.
This doesn’t mean that you can’t have any debt outstanding, but you should try to minimize the amount you have outstanding before you apply for the loan. If you have credit card debt, try to pay the balances off in full. If you aren’t able to pay them off in full, at the very least, try to get your balances paid down enough so that they are less than 30% of your total credit limit. Once you owe more than 30% of your credit limit, it’s a red flag to lenders, making them less likely to give you a loan.
Have Stable Employment
Even if you are applying for a stated income loan, you still need to prove your employment. Lenders want to know that you have stability and reliability when it comes to your income. The longer you are at your job, the more stability you show a lender.
Ideally, you should have at least 2 years at the same job. This shows lenders that you are consistent with your efforts to stay at your job. It also gives you room for raises, putting you in a better financial situation moving forward. If you don’t have a 2-year history at the same job, you’ll need to explain why you made changes. Did you better yourself by taking a higher position? Did you go back to school to start in a different industry?
Your lender will need to know the exact reason you changed jobs so that they can gauge your ability to be successful at the new job. Since your job is the source of your income, your lender will need to make sure beyond a reasonable doubt that you are able to succeed in your chosen profession.
You can increase your chances of getting a stated asset loan by making sure all qualifying factors go above and beyond what the lender wants to see. Just meeting the basic guidelines isn’t enough. Lenders need to know that you are a good risk and that you don’t pose a high risk of default.