What CRE Investors Should Know About Stated Income Loans
When shopping around for a house loan, various types of financing should be reviewed. One that can be advantageous to acquire is a stated income loan. This is when an individual seeks a loan from a bank or other lender, but the lender will not verify the income stated. Whether you are looking to purchase a home for yourself or invest in a property, there are some things you need to know about this method of financing.
There are several advantages to be gained by pursuing this loan. For starters, little documentation is required to be presented to the lender. This is due to the fact that income and tax returns are not mandatory. There are no prepayment penalties, and the review process is relatively quick. People typically hear whether they were approved in a short amount of time.
Many people pursue stated income loans specifically because they are quick to acquire. This is beneficial if a property is popular, and an offer needs to be made right away.
Another important aspect of these loans is that the lender may check your income history. Many institutions will not review your financial history and simply take your word on however much you earn. However, there have been instances where lenders have checked. With this in mind, it is best to be honest. It is always preferable to be as honest as possible when applying for loans, but you do not want to take an unnecessary risk by saying you make more money than you actually do.
There are other items a lender will look at. For example, you can expect a lender to review your credit rating. Since the bank will generally be taking your word on your income, an excellent credit score can really work in your favor. In order to acquire a stated income loan, most people will need to have a credit rating higher than 700. Additionally, you may need to show that you have a large amount of money tucked away in savings.
There are several situations where this loan would be most advantageous. For instance, when an investor wants to flip a property, a loan can help purchase the building at a reduced cost and help with any repair expenses. It can also be good if an investor needs to acquire a property now and knows that he or she will have a lot of money coming within the next few months. Similar to any other type of loan, the effectiveness of a stated income loan comes down to how you use it.