Lying for Loans???
It seems, unfortunately, because of the availability of loan programs intended to meet the needs of small business people or people whose income is majoritively commissioned based, a number of people are getting financing for homes they really can’t afford. Stated income loans were designed to help professional business owners who, because of their business, were unable to confirm all of their income. This can also apply to commissioned sales people, such as realtors, whose income can be sporatic, thereby creating an impression of “unreliable income” in the eyes of traditional underwriters.
What’s happened? Loan officers are getting buyers qualified for home purchases with these programs but both, the officers and buyers, are failing to be realistic about the buyers ability to service the debt.
In certain areas of the country, this practice has gotten out-of-hand. Utilizing the many loan options available today, homebuyers are portrayed as “lying” about income and assets to the point that the industry sees
“widespread and growing fraud in home loan applications, where sticker-shocked buyers lie [in order to qualify], according to Kenneth Harney of The Washington Post.
Harney also reports that “the FBI received more than double the number of mortgage-related suspicious activity reports from 2003 to 2004, and the problem is spreading from the biggest cities out into smaller metropolitan areas.
With stated income loans, buyers can qualify for higher loan amounts. In addition, interest-only loans can allow borrowers to maximize their debt-to-income ratios. The risk??? If the market turns, homeowners may find themselve in situations where they are unable to sell their homes for what they owe on them.
Homebuyers that are stating income beyond their true earning potential and making interest-only payments are risking their fiscal health. Ruination can be just a few missed paychecks away if you have minimized your loan obligation and maximized your debt exposure.
Be very careful of stated income loans and/or interest-only loans if they take you beyond your realistic financial profile. Everyone wants to own a nice home, but, just because your loan officer can get you approved utilizing these programs, doesn’t mean the property is affordable if it stretches you beyond your ability to maintain your financial well-being.