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Stated-Income

Is it Possible to Get a Stated Income Loan for Investment Properties?

November 14, 2017 By Chris Hamler

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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.

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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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Finding Financing for Your Investment Property

February 21, 2017 By Justin

Finding Financing for Your Investment Property

Investing in real estate is a lucrative way to grow your money, just ask Warren Buffett. From a single-family home to a multi-family building, an investment property is an income-producing venture for years to come.

There are many ways to fund your first-ever foray into the world of real estate investing, such as (a) mortgages, (b) home equity loans and (c) investment property loans.

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Stated Income Loans, et al. for Investment Property

Besides primary residences, mortgages have been used to purchase rental properties. Despite its investment-driven purpose, these mortgages are classified residential because they cover one-to-four unit properties.

  1. Stated income loans are made for self-employed professionals, small business owners and high net-worth individuals who are into real estate investing. It’s no surprise because a typical down payment on a stated income loan is 30% at the minimum. Stated income lenders also need a higher level of cash reserves sufficient to cover three to 12 months’ worth of monthly mortgage payments.
  2. By their stated purposes and intents, you can’t use an FHA loan to purchase an income-producing property. But situations are replete when it has been used for investing. Say you took out an FHA loan and then moved out of the house and have it rented out. In another case, you buy a duplex where you plan to occupy one unit and lease the other. Down payment for FHA loans could go as low as 3.5% for a credit score of at least 580.
  3. Conventional loans conforming to Fannie Mae and Freddie Mac’s standards can require at least 30% of the purchase price of the income-producing home as down payment. There should be enough cash reserves to meet six monthly mortgage payments. Moreover, a property management experience (being a landlord) of at least two years is required.

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Home Equity Loans for Investment Properties

Home values are expected to rise by 3.5% this year per Zillow. This bodes well for those who own their home outright or hold a significant equity in their homes.

Second mortgages such as a home equity line of credit or home equity loan can be used to finance the down payment on the second home. Back this second mortgage with cash savings and asset holdings for emergencies.

Using home equity is a popular way to do some house flipping, it is when you buy a home, renovate it and resell it for a higher return.

Investment Property Loans

These specialized loans are for individual and commercial real estate investors. Investment property loans are structured to assist investors in:

  • Financing and fixing properties
  • Refinancing existing properties

One final word. Just some reminders to help you with your property investing venture:

  1. Do your homework first before you put your hard-earned money or home equity on any property.
  2. Make sure that the desired property is eligible to be financed.
  3. Expect to generally see higher down payment requirements, higher rates, and bigger cash reserves on investment properties.

Are you ready to be an investor? Talk to us today!»

How Real Estate Investors can get Stated Income Loans

June 15, 2016 By Justin McHood

How Real Estate Investors can get Stated Income LoansStated 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.

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Stated Income Loan Requirements for Investment Properties

The basic requirements to meet any loan are necessary for stated income loans for real estate investors, but there are definitely fewer restrictions on this group of people. The requirements include:

  • Large down payment – One of the best ways to reduce the risk that a real estate investment loan gives to lenders is to make a large down payment. Lenders usually require at least 30 percent of the sales price for this type of investment. The larger the down payment that you make, the more you have invested in the home, which means you will be more likely to stay current with your payments to avoid foreclosure of the home and losing your investment.
  • Reserves – Aside from the money you need to put down on the investment home, lenders want you to have reserves on hand so that you can cover the mortgage payment if you were to get into trouble. For example, if you rent out the home and the renters stop paying the rent, the lender needs to know that you have a minimum of 6 months’ worth of the mortgage payments on hand to cover the loan. Every lender has a different requirement regarding the amount of reserves necessary – some accept as little as 3 months while others require at least 12 months
  • Good credit – This goes without saying; the higher your credit score, the more responsible you are with your finances. When it comes to real estate investments, this is crucial. Because lenders are giving you a loan that is not for your own home, they have to ensure that you are really good at balancing your finances to cover everything you have outstanding. It is not unheard of for lenders to require a credit score of at least 700 for investment homes.
  • History of investment homes – Most lenders prefer to see a history of how you handle investment homes. Even if you only have one home to show, it is proof that you can handle the responsibilities that come with renting out a home and managing the finances that go along with it.

How your Income is Verified

Your income can be verified in an alternative way when you are looking for an investment home loan. Lenders usually use your bank statements to verify your income. If you have a history of renting out homes, this is very easy to accomplish. If you are new to investing in homes, you might have to verify your standard employment income before you start using bank statements – every situation will be different. Once you have a history of investing in homes, you can use your bank statements to show the cash flow you receive from your investments and how you manage it.

Banks typically prefer real estate investors for their stated income loans because the income is easy to track and the history of how you handle your finances is simple to verify as well. If you are a real estate investor, consider finding a lender that offers this type of loan so that you can continue on your journey to invest in more homes.

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