Stated income loans were a popular option during the early 2000s. It was one of the factors that led to the collapse of the housing market. This happened because the lenders provided the borrower with the loan amount based on their income stated on the loan application. This means avoiding checking the income documentation to verify if the mentioned amount is correct. Thus most of the borrowers defaulted on the loan. But in 2010 Frank-Dodd Act was passed. With the stated income loans for the owner-occupied property are now illegal. This means a lender must now fully document the ability of the borrower to repay the loan either with his assets or the income. In the current scenario, stated income loans still exist for most real estate investors. However, they aren’t investing in owner-occupied properties. Thus leaving some borrowers at a great disadvantage, especially those self-employed. However, there is good news that a type of loan known as a bank statement loan can help ward off trouble and fulfill the end to get the required assistance.
Besides this, one can get in touch with private commercial real estate lenders to better understand the lending information for a specific property. There are now multiple lenders one can easily find to get the assistance they need. This no doubt has offered great convenience to people as they can compare the rate and services of different experts to get a good deal. With a simple search for stated income commercial lenders, there will be thousands of options to choose from. But it is advised to stay alert while deciding to avoid any problem later.
Stated income loans for self-employed borrowers
When the self-employed borrower’s contact stated income commercial lenders, they will face great difficulty qualifying for the traditional mortgages as they have a variable income and cannot provide the documentation required by the lenders. But there is an alternative loan, also known as a bank statement loan. So the borrowers now can use different methods to determine the qualification but still make the end goes to pay standards as laid out in the Frank-Dodd act.
For the bank statement loans, the lenders have to make use of bank statements to confirm the borrower’s income, rather than the tax returns and recent pay stubs. Each lender has got its style and requirement to determine the net income of the borrower. This means if you don’t qualify for one private commercial real estate lender, then you can find another one who can assist you.
The bank statement loans are generally offered through non- QM lenders meaning non-qualified mortgage lenders. Although it might sound scary, it is pretty simple. This means that the loan cannot be sold to Freddie Mac which most of the loans generally are. This is why not all of the lenders can offer you non-QM loans. So it would be best if you searched for private commercial real estate lenders to find yourself a lender who can provide you with the assistance you need.
Qualifying for a bank statement loan
Besides determining the borrower’s net income, the lenders also look at different other things to determine if the borrower can repay the loan on time.
• Two-year time frame
Generally, when you contact a stated income commercial lender, they will ask the self-employed borrowers to have at least two years of expertise with consistent income.
• Debt to income ratio
It is the ratio that is used for determining the maximum loan amount. In some cases, lenders may go as high as 55%. However, in traditional mortgages, the rate will be between 36 to 45% only. But remember, the actual ratio will vary according to the lender.
• Down payment
Generally, this type of loan requires a significant amount of down payment and any other mortgage option. The borrower with great credit might still be required to put at least 10% of the down payment. But in some instances, a lender might require the borrower to pay even more.
• Credit score
You can expect a higher credit score requirement with bank statement loans. Although you can qualify with a low score, you will be charged a higher interest rate by the stated income commercial lenders.
It is also vital to keep in mind the interest rate. This becomes important because the loans are considered riskier and expect interest rates to be 1% or higher than the traditional options. Although more and more lenders have started offering non-QMA loans, the rate has become more competitive. But for this, you will have to research to identify the stated income commercial lenders who can fulfill your requirement and assist you at a reasonable rate.
Stated income loans for real estate investors
Although one cannot use the stated income loans for the owner-occupied property, they still have the option for the borrowers to invest in the investment property. This is quite a big help for the borrowers like the house flippers, real estate investors, self-employed, etc., who wants to purchase non-occupied property and get a loan without comprehensively documenting the income or showcasing the tax returns. The CEO of Athas Capital Group, Brian O’Shaughnessy, said that most clients use this type of loan to purchase another rental property, improve their cash flow, or sell a property and require a loan to finance the remodeling period. In addition to this, some of them temporarily opt for stated income loans because they expect a significant cash advance during the end of the year but did not want to give up an opportunity on an investment property. They make use of these loans to keep the portion of their capital for other investments.
The stated income loans in the current scenario are growing. This is why no one can easily find private commercial real estate lenders who are now ready to offer the loan amount to borrowers capable of paying it back on time. Besides this, hard money loans are other specialized forms of loans that come with higher interest rates. But they are a great opportunity for real estate investors to benefit from investment opportunities and make the most of them. Besides, as they are short-term loan opportunities, one has to take the chance to make the most of them.
Qualifying for stated income loan
The stated income of commercial lenders providing the mortgage does not qualify the borrowers easily. There are certain things the borrowers need to have to get the loan amount. For instance, the borrower must have a good credit score, a sizeable down payment, and plenty of cash reserves. Most of the state income is based on the property’s equity position. This means that it will be easier to get the loan from a suitable lender when the borrower has more to put down. Generally, the stated income commercial lenders will ask to put forward 30% down compared to the 20% they have to provide through a conventional loan. But in most cases, the borrowers can bring forward 35% to 50%. In such instances, the loan has a maximum loan-to-value ratio of 70%.
Besides, the employment of the borrower is verified. However, the application filled for the loan has to state the monthly gross income. The stated income commercial lenders ask for bank statements and asset documents to see the borrower’s capability to guarantee he has the money to pay back the loan. Similar to this, the bank statement loan interest rate will be relatively higher than the traditional options, depending upon the lender you have considered to get the loan. Although the things here are a lot difficult and different from conventional mortgage options, it offers an excellent chance for the borrowers like the one who understand well about the market condition can make the most of these loans.
It is vital to understand that some of the borrowers might require additional documentation to verify the borrower’s income. So contacting them in advance will help prepare for different situations and collect all the essential documents needed for the process. This will ease the work and will guarantee the loan process goes smoothly.
Conclusion
After the early 2000s, stated income loans in recent times have received great popularity. They are now becoming an excellent means for investors to earn passive income; however, this requires them to get the loan amount, for which the process can be a lot complicated. Finding good private commercial real estate lenders is not easy who can offer a good deal. This will require professional assistance to guarantee you have easy work. Private Capital Investors is the one you can consider contacting to get the help. Their expert professionals will bring forward great deals for you and will avoid all the hassle. For sure, you will get the convenience and ease of finding the value you need to use the investment and succeed in the marketplace.
