Stated Income Loan

A stated income loan let borrowers declare their income on the application without documentation, and lenders qualified them on the stated figure. Widely abused before 2008, they were effectively banned for consumer mortgages. DSCR loans replaced them for investors by qualifying on the property instead.

Stated income products were designed for self-employed borrowers whose tax returns understated real earnings. In practice the stated figures were often inflated, and the loans became known as liar loans. Ability-to-repay rules now require consumer lenders to verify income.

DSCR lenders solve the original problem a different way. Instead of asking the borrower to state income, they ignore borrower income entirely and measure the property's rent against its payment. The self-employed investor with heavy write-offs qualifies on a rental that covers itself, with no incentive to misstate anything because personal income is not in the file.

Further reading: Stated Income Loan on Wikipedia.