Purchasing property is often required for business growth. For example, you may need a larger space for production or want to open a second location. However, gathering the capital needed to buy real estate may be difficult for businesses that are locally owned, reliant on orders or see market fluctuations throughout the year. The solution is to get a loan, but that also poses problems. It can be difficult to qualify for a traditional commercial real estate loan if you are a self-employed borrower for example. You may also need cash quickly to take advantage of a temporary deal and therefore can’t wait for the usual underwriting process common with conventional mortgage lenders. In these instances, a stated income loan may be your best bet.
How Do They Work?
When you get a traditional mortgage loan, lenders are required by law to acquire income verification. With a stated income loan, however, lenders accept your income as stated without requiring the usual income documentation such as months of bank statements. Because of the Dodd-Frank Act, this type of loan can’t be used for owner-occupied real estate. Business owners, however, can still make use of them for commercial properties. It’s important to note that lenders are taking on greater risk with this kind of financing, which may mean higher interest rates and lower loan-to-value ratios than a traditional real estate loan. However, it’s generally a better deal than a hard money loan or bridge financing.
Why Should You Apply?
There are many reasons this type of loan may be attractive when compared to a regular loan. For example, if you want money to cover the purchase of an investment property before selling your current real estate, these funds can bridge the gap without demanding too much time and effort. You can also use this financing to access equity for renovations or other projects. If you’re a self-employed borrower or otherwise don’t have access to W-2s and other tax documents such as tax returns, this lending could be an excellent option when compared to a conventional loan.
What Can You Do To Qualify?
Just because mortgage lenders aren’t asking for tax returns doesn’t mean just anyone can get approved for a stated income loan. You still have to provide some information. To qualify for financing, you need to have a credit score that’s over 700, a large income that’s relatively stable, a good amount of money saved and disclose any liquid assets. Lenders are also likely to ask for bank statements that show proof of income during the qualification process. When a conventional mortgage won’t cut it, you should consider a stated income loan. It’s a quick solution to the problem of raising capital for real estate, making commercial or rental properties more accessible.
FAQ
The primary difference between a loan from traditional mortgage lenders and a stated income loan is the level of documentation that is required to establish an applicant's ability to repay the loan. A typical mortgage requires full documentation of income, including pay stubs, W-2s, tax returns, and other forms of verification. Stated income loan requirements involve only showing proof of income on the application without having to provide any additional documentation.
Generally, the best candidates for a stated income loan are business owners who do not have full documentation of their income or those with fluctuating incomes. Self-employed individuals and those who derive most of their income from commissions may also find this type of loan to be a more beneficial financing option than traditional loans.
No, a stated income loan is not the same as a stated asset loan. A stated income loan is defined as a loan in which the borrower does not need to provide evidence of his or her actual income. Instead, the lender may have specific credit history requirements, require tax returns, and rely on factors such as current debt load when determining whether or not to approve the loan.
A stated asset loan, however, requires the borrower to provide proof of his or her assets. This type of loan is typically used by commercial real estate investors. To approve the loan application, the lender will require personal income documentation such as bank statements, investment portfolios, and other records in order to approve the loan.
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The repayment terms of a stated income loan depend on the lender and the type of loan. Generally speaking, most lenders offer repayment terms that range from 5-30 years. The repayment frequency (monthly, bi-weekly, weekly, etc.) is also determined by the lender.
The interest rate charged on a stated income loan is usually higher than other types of mortgage loans because there is more risk for the lender.
Dodd-Frank Wall Street Reform and Consumer Protection Act is a federal law that was enacted in 2010 to strengthen financial regulation in response to the financial crisis of 2007–2008 which led to the housing market crash. The primary purpose of the law was to protect consumers from risk associated with mortgages and other financial products, as well as increase transparency and accountability within the banking system. It also created new regulatory bodies, such as the Consumer Financial Protection Bureau, to better monitor the financial industry.
When you are considering whether or not to apply for a stated income loan, there are certain factors that must be taken into account. First and foremost, you should consider the minimum credit score requirements. Additionally, you must be able to show proof of sufficient liquid assets to cover the cost of the loan. This could include bank statements or other documents that prove your ability to repay the loan. Finally, you should consider whether the interest rate and loan-to-value ratio of a stated income loan are a more favorable financing option than loans from traditional mortgage lenders.
