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. You may also need cash quickly to take advantage of a temporary deal and therefore can’t wait for the usual underwriting process. In these instances, a stated income loan may be your best bet.
How Do They Work?
When you get a traditional mortgage, lenders are required by law to verify your income. With a stated income loan, however, lenders accept your income as stated without requiring the usual verification documents.
Because of the Dodd-Frank Act, this type of loan can’t be used for owner-occupied real estate. Businesses, 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 hard-money or bridge financing.
Why Should You Apply?
There are many reasons this type of loan may be attractive. For example, if you want money to cover purchasing a 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 self-employed or otherwise don’t have access to W-2s and other tax documents, this lending could be an excellent option.
What Can You Do To Qualify?
Just because lenders aren’t asking for tax documents doesn’t mean just anyone can get approved for these loans. 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 and a good amount of money saved. Lenders are also likely to ask for bank statements confirming the funds in your accounts.
When a 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 a property more accessible to more commercial enterprises.
