Do I Need a Source of Income to Qualify for a Loan?
There was a time not that long ago when mortgage lenders were happy to give out loans to anyone who had a pulse.
Simply sign a piece of paper stating you had a certain amount of income, and they would gladly give you the loan you wanted. For better or worse, those days are long gone.
The banking and credit crisis that began in 2007 was largely brought about by the lax lending practices of those banks.
In their rush to lend as much money as possible, they forgot a basic principle of banking. They forgot to be sure the loans you make can be paid back.
These days banks, for the most part, require more documentation than ever before they will approve someone for a loan.
This proof includes a proof of good to excellent credit, a proof of good payment history and proof you have a source of income.
This is where things can get a little creative.
The question of what qualifies as a source of income will vary from lender to lender but can include:
- Pension payments
- Child support payments
- VA benefits
- Disability payments
- Unemployment compensation
- Social security income
- Seasonal or part-time pay
- Even rent paid by family members may qualify as income
While banks may accept some or all of these potential sources of income, they will all need to be documented as taxable income shown on a 1040 statement.
The days of stated income loans, also called no-documentation loans, are a thing of the past.
“Banks are being more
careful when lending money.”
After all, we saw what can happen when they were too lax. Many people feel as if the lending practices of banks have now become too restrictive.
They now seem to want to lend only to those who do not actually need the money.
As with any crisis, the overreaction is to be expected.
The pendulum will swing back the other way and banks will once again compete with each other to lend money.
Maybe when that happens, we will once again see banks looking the other way when asking for a source of income to qualify for a loan.
Only time will tell.
Photo source: aia-arizona.org