In the real state industry, stated income commercial real estate loans came in like a boon but soon disappeared after the 2008 mortgage meltdown.
It was like those products that come into the market out of nowhere, grab everyone’s attention, win everybody’s heart because it’s so simple and easy and then vanish into the thin air all of a sudden due to some major potholes!
We can think of hundreds of such examples where some particular products disappeared from the market all of a sudden in the same light as it had entered the market.
Stated income commercial real estate loans solved the problems of many people and also helped many amateur investors grab great deals!
They also helped the lesser earning classes of the society believe in the idea of real estate investments and did help them make quite a fortune for themselves.
It was going good and great until the 2008 mortgage meltdown, after which the concept of stated income suddenly disappeared into the thin air.
It was flushed away from the market so clean that for a couple of years after the 208 mortgage meltdown, the commercial real estate loan brokers never uttered a word about ‘Stated’ income.
It was as if the very term of ‘Stated income commercial real estate loans’ had become a taboo. It was during those times that many investors felt disheartened as the loan eligibility requirements of conventional institutions had increased even more than before.
There was clearly no way out for hundreds of investors and all those commercial mortgage brokers and private money lenders who had embarked upon the concept of Stated income commercial loans were back to their old business where it was really hard for them to even penetrate the market with the overwhelming cutthroat competition from the conventional lending institutions.
The year of 2008 with the mortgage meltdown is often considered as the black spot in the history of real estate industry.
The mortgage brokers who had loved these loans and embraced them for their easy-and-quick closings took a harsh blow during this time.
This trend continued for quite a long time and the commercial mortgage brokers had no luck and considered looking for newer alternatives of penetrating the market but silently hoped for ‘Stated income commercial loans’ to come back in the market!
Their prayers paid them off well! Stated income loans are now back and much better! All those disheartened amateur real estate investors have an opportunity again.
And there cannot be happier news to the self-employed professionals and the freelancing professionals who do not have regular salary slips or a regular consistent source of income.
Yes, you heard that right! The biggest good news for real estate investors this year is that the ‘Stated income commercial loans’ are back into the market and they’ve started to conquer the hearts of the real estate borrowers and their agents’ bit by bit all over again!
But this time, the difference is that the borrowers and the lending institutions are going to do it right!
Also, it’s quite interesting to note that these loans haven’t entered the market this time like a huge storm unlike how it had earlier.
It’s conquering the market gradually bit by bit, which is why we believe that this time Stated income commercial mortgage have not come to just vanish into the thin air!
They’re here to stay and it’s very evident that the footing of Stated income commercial mortgage is much stronger than before as it’s penetrating the market deep but slowly and gradually, just like a tree strengthening her roots.
Well, that calls for a party for many real estate investors, private money lenders, commercial real estate brokers, mortgage brokers and yes, the conventional lending institutions too! Let us look into what’s new and how stated income loans would be different this time.
Stated Income Loans are back and better! – What’s new and what’s not?
1) Lenders are now only relying upon the bonafide figures and crisp data
One of the major reasons why Stated income commercial mortgage got washed away from the market and failed to survive is that the lenders then had taken the borrower’s words to be the final words and based their lending decisions on the figures ‘stated’ by the borrowers.
Many borrowers took negative advantage of such a practice and stated wrong income figures as they were already aware of the fact that these figures were never cross-checked by anyone.
That’s exactly where the lenders went wrong and this is what led to a total downfall in the mortgage lending industry with lenders struggling to recover their loans and the borrowers indulging in various sorts of malpractices.
This time, this trend is going to change. Lenders would now rely on the bonafide figures and data backed up with documents to support the income proof.
So the value of what the borrower has to say about his income is lesser than what his records have to say. Without the relevant bank statements or e-mail confirmations about the income, the lenders would not approve
Stated income commercial mortgage just-like-that on the face of what the borrower says. Now, that’s surely good news to every genuine loan borrower who is need of stated income loans.
But for those who perceive stated income loans as an easy bait to cheat the lenders and start investing, it sure is the worst news.
2) Lenders are looking at the strong borrower credit scores
Before the 2008 mortgage meltdown took place, the lenders did not pay more attention to the borrower’s credit scores and believed the borrower’s words on how he would settle the loan amount.
And then, we all know what happened. But now, lenders seem to have learned their lessons right and are considering the borrower’s credit scores before taking a decision on lending loans.
The credit may have been poor, but the lenders now expect a genuine explanation as to what went wrong.
If they’re convinced that a borrower has a poor credit score due to some major mishappening and not due to his negligence or inability to repay the amount, only then will the lenders move ahead with the processing of the loan.
3) On-Time Mortgage payment histories do count to a great extent now!
Private money lenders cared less about the payment histories of borrowers earlier and majorly only focused on the viable investment opportunity.
But now, the lenders have become extra caution and ensure that they verify the payment histories of every borrower who approach them.
Also, the mere affidavits given by legal attorneys alone won’t suffice and the lenders are looking forward to more reliable ways of verifying the mortgage payment histories of borrowers.
4) A third party appraisal is required for verification of mortgage property
To ensure that there are no malpractices involved, the lenders would now require a third party inspection for the property wherein a third party appraisal would be mandatory for verifying not only the market value of the property but also other things like the occupancy of the property, the market rent which is received from the property, to check if the leases are in place and so on.
This is particularly executed to ensure that there no loose ends to the borrower’s mortgage property which would provide the lenders a peace of mind.
5) The tax returns continue to be waived off
What would not change with the new stated income loans that are back is that the income tax returns on the personal income drawn by the borrower were not expected to be submitted for scrutiny earlier and it’s going to remain unchanged even now.
Well, that’s good news to the people who do not draw regular pay in slips, especially in case of freelance professionals and self-employed professionals. The tax returns related to the stated income earned continues to remain waived off in the upcoming years as well.
6) The average down payments range between 25-30%
The down payments for stated income loans were as it is low as compared to various other forms of loans. The new stated income loans would require a borrower to pay up at least 25% to 30% of the loan amount upfront as part of the down payment.
This can be a bad news for in editors who are really on a shoestring budget and need best of the best and cheapest deals.
It is a great challenge to find a private money lender who is willing to provide a stated income loan with less than 25% down payment.
They were some of the facts about the new stated income loans. A common thing you can notice amongst all these facts is that the lenders are now being proactive and caution than ever before in their lending endeavors.
Looks like the lenders have learned their lessons back when the mortgage fall down happened in the year of 2008 and are now in full gear to make good money by lending only to trusted and genuine borrowers in the first place!
If the same trend continues, stated income commercial loans are less likely to be washed away from the market!