Financing in Seattle>Question Details

Gena Riede, Real Estate Pro in Sacramento, CA

Should I be concerned if my Loan Officer told me to state my income higher?

Asked by Gena Riede, Sacramento, CA Mon May 21, 2007

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You should review your loan application to see if the income you're stating makes sense. Does it match your gross income? If you are grossly overstating your income to qualify for a mortgage payment beyond your means, it could be trouble for you down the road. You can read more why I don't like stated income (I prefer no income verifed) loans with the link below.
4 votes Thank Flag Link Mon May 21, 2007
Stated income was first created solely for the use of self-employed borrowers. I agree with Sunil in that many self-employed borrowers, tax-wise, show very little income, but when it comes to the actual amount they keep in their bank accounts after all deductions and expenses have been reported, the income is usually much, much higher than it reflects on tax returns. Stated income allows for these borrowers to "state" their actual income rather than the documented income the lender would have to use to qualify the borrower.

However, if you truly are making $30k a year and the loan officer is encouraging you to report $75k a year, we have a problem, a huge problem. Either way, keep in mind that the first thing that you and your mortgage consultant need to consider is what monthly payment you are comfortable with. Then build the mortgage around that and see what you can afford, see what you can qualify for, and get that loan! Happy hunting!
3 votes Thank Flag Link Wed Aug 8, 2007
DON'T DO IT. At settlement, a buyer must sign a permission for the lender or investor to obtain a copy of your tax return from the IRS. If an investor does so and sees that the income was overstated, that is mortgage fraud. If a loan officer recommends making a false statement on a loan application, a new loan officer is recommended. If a loan officer would recommend mortgage fraud to a borrower, how could a borrower rely on the statements of that loan officer?
3 votes Thank Flag Link Wed May 23, 2007
Material misrepresentations on a loan application is fraud; any encouragement by a loan officer to commit fraud should be a concern. Loan programs that do not take income into consideration (no income qualifiers) should be explored as an alternative
Web Reference: http://brian-brady.com
3 votes Thank Flag Link Tue May 22, 2007
On the surface the answer is a resounding "Don't Commit Lender Fraud!" ever. However if you are paid by the hour, and are currently making $20 an hour, but were recently paid $15 an hour you can consider a fact like this.

Lenders use the current income of a salaried worker even if they just got a big raise yesterday. Lenders use the two year average income of an hourly paid employee ,and do not offer the same consideration to someone who just received a big increase in their hourly wage.

To some extent one could view that as a discriminatory practice against hourly paid workers. I have seen this with a Boeing Employee who has worked for Boeing for 20 years. Clearly he should have the same advantage afforded salaried wage earners, and not be penalized simply because he is paid on an hourly basis.

In that case I would say that stating your income at what it is, and not relying on a system that makes you average two years back, is likely a fair and good use of "stated income" for loan purposes.

Likewise if you have just raised to a level in your company where you will be receiving bonus income in the future, that you did not receive in the past.

The only reason to use stated income is if your REAL income is higher than the lender is considering under their normal guidelines. That is the purpose of there being a "stated income" vs. "fully documented" option.

So if it is true that you income is higher than records would show, then yes. If you are asking if it is OK to lie...well, that's pretty obviously a no.
2 votes Thank Flag Link Thu Jul 5, 2007
Absolutely.. I would question the integrity of any lender who had a buyer state that he made more income or had more assets then he actually had. Fraud and misrepresentation are major flags that the FEDS are checking on problem loans. I think that Brian has offered excellent advice.. If you are interested in listening to an interview with Brian see the link below..
2 votes Thank Flag Link Wed May 23, 2007
Kaye Thomas, Real Estate Pro in 90266
MVP'08
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In today's lending market stated income loans are few and far between. Consider for a minute that you are choosing to work with someone that is asking you to lie about your income which will have potetntial legal repercussions for both of you. Not to mention that the abillity to actually make the payment is a huge consideration. RUN RUN RUN and think about turning them into DFI for mortgage fraud.
0 votes Thank Flag Link Sun May 11, 2008
Concerned? Run for your life honey....
0 votes Thank Flag Link Wed Aug 8, 2007
My guess is you already know the answer to this since you felt strongly enough to ask about it. If you feel this to be a breach of ethics, it proably is. If the lender has good reasons for this, he/she may not have explained them fully. Ask your lender to explain his/her reason for this and then make a decision based on what you think is right. Remember, in general, even if something is legal, it may not be the right thing to do.
0 votes Thank Flag Link Wed Aug 8, 2007
The banks common sense is they'll accept a debt to income ratio of 50%. Your loan officer is asking you to state an income that falls under this guideline to get your loan accepted by the bank. Is this wrong? You have to use your common sense.

If your self-employed and you take a lot of non-cash deductions on your tax return (depreciation, mileage deduction, non-cash donations to charity), you probably don't make much money on your tax return but do keep a lot of your cash. If you understand what your cash flow situation will be post purchase, and are comfortable with the obligation, than go for it. Realize that if you fall behind on a payment or default and the bank decides to pull a copy of your tax returns to verify income, you could be charged with fraud. Don't over extend yourself. Err on the side of conservatism, and keep 6-12 months of PITI in reserves.
Web Reference: http://www.sunilsethi.com
0 votes Thank Flag Link Tue Jul 3, 2007
I am just writing this to validate that I too believe Seattle's answer is the best. As we have all witnessed lately just make sure you can afford the loan now and in the future (depending on the program you select).
0 votes Thank Flag Link Sun Jul 1, 2007
Stated income loans are provided as a convenience for individuals who write off the majority of their taxable income. However, the cash flow should actually exist. A number of better options exist including no income verification and no ratio. The bottom line is that you should never take on more than you can afford. Please contact me if you wish to discuss this further 206-852-1166.
0 votes Thank Flag Link Sun Jul 1, 2007
When a mortgage broker has the nerve to ask that question, you should question his/her ethics and how they are treating YOU as well. There is a certain amount of Git R Done in all mortgage originators... but knowing what is grey area and what is the dark side is what separates a good mortgage broker from a fraudulent one.

The IRS 4506-T that a lender will require at closing will prove that the income was overstated in the event of default. Technically they are not supposed to pull your taxes unless you default - but one late payment can create the lender's desire to double check the facts.

Stated Income is a convenience for people that either don't keep their books well or for professionals who have seasonal/sporadic incomes like Salespeople. It just smooths the numbers out.... it does invite some creativity in those who are less than ethical... but the actuality of it is that it was not meant for sheer lying.

One good use for this is to compensate for cash income or side income that is not reported... I know - we all report every dime! ... but say you have some side income that your accountant tells you does not apply to your taxes... and this is steady work. Police often bounce bars, bodyguard, do security or work at liquor stores after their shifts. At Bars, they may get tipped out by the servers. If they consistenly work that job, it could be a viable source of qualification income... but it is REAL.

If the loan officer is having you quote fictitious monies, then it is Fraud.
0 votes Thank Flag Link Wed Jun 27, 2007
you should be concerned if you can't afford your monthly payments. Lenders are looking for ~50% debt to income ratios, or lower. Meaning that your total monthly payments on debt (house payment, taxes, insurace, and all your auto loans, credit cards etc) should not go over 50% of your total gross monthly income. if you make 6k month and your monthly mortgage payment is 4k - you have a problem. Sating income higher helps you qualify and get that loan from the lender, but can you afford it? That's the question you need to ask yourself.
0 votes Thank Flag Link Thu May 24, 2007
Yes, unless they were pointing out an error you made, or that you should include alimony income to qualify, for example. An ethical lender will find you a loan program that matches your actual circumstances. Ask them why, and if you still have concerns, find another lender.
0 votes Thank Flag Link Mon May 21, 2007
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