Most banks are happy to finance investment properties for borrowers who have less than four mortgages under their name. Unfortunately, they frown on applicants who have problematic credit history, short employment history, have more than four investment properties in their portfolio, or those who have unconventional sources of income. Can the stated income option come to the rescue?
Stated income loans have their roots even before the housing crisis. In fact, they used to be very common, despite the high risk they carry. The accumulation of these non qualified loans led to the housing collapse in 2008, leading lenders and borrowers alike to shy away from such offers. However, they didn’t disappear altogether.
How do you get a stated income loan?In the years that followed, stated income loan offerings shrunk but as the years erased the trauma of the previous crisis and more demand kept coming in, lenders began to see the profit potential in the underserved borrower market. Today, such loans are making a comeback. Are they safe? Experts suggest that these loans aren’t the same as their predecessors because of more stringent underwriting standards. Stated income loans today may be harder to qualify than their their subprime counterparts pre-recession.
If you get turned down by big banks on your investment property financing application, you can look to lenders such as:
- Local Portfolio Lenders. These lenders lend their own money and don’t sell their loans to the secondary market.
- Hard Money Lenders. They specialize in providing loans for fix and flips or rental properties for a short period of time.
- National Lenders. These lenders specialize in financing rental properties.
Why is it hard to get a loan on investment properties?
After the 2008 recession, the government established rules that required strict underwriting requirements to make sure the borrower can repay the loan. This wasn’t the case before the crisis. Lenders used to provide loans even without verifying a borrower’s income.
This made it difficult for many borrowers who have the money but can’t establish the proper proof that they can, indeed, pay for the loan. Most of these borrowers have huge debt-to-income ratios due to the huge amount of credit on their name. Many of these investors also take huge deductions on their taxes. If your taxable income is too low, you’ll have poor chances of getting a loan. And even if the borrower does manage to get a loan, there’s another set of barriers to refinancing.
Find a mortgage option that's right for you.What other benefits can I get from getting a mortgage under alternative lenders?
Most local portfolio lenders do not care if your properties are under your name or an LLC. Most banks require a property to be under the investor’s name which can pose a problem if he or she is trying to limit liability. A strategy that most investors follow is to transfer their properties to an LLC when they finance with a bank later. Unfortunately, the banks can call the loan due when the property is sold and transferring the property to an LLC is basically selling it. This complication is avoided with certain stated income lenders.
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Stated income loans are the perfect solution for many different types of borrowers including self-employed and commission based employees, but the people that they benefit the most are real estate investors. There are several reasons that real estate investors are such a good fit for this program, however, the largest reason is because investment homes are not nearly as regulated as owner occupied properties. This means that investors that take out mortgages have fewer restrictions against them, making it easier to obtain a mortgage.