After the 2008 mortgage crisis, it became harder for many homeowners to own a home due to the implementation of the Qualified Mortgage Guidelines. Under this standard, borrowers are only qualified to get a loan if they have good credit standing, low debt, and income that can be verified. This left out homeownership opportunity for millions of Americans who don’t fit the bill.
The Qualified Mortgage Guidelines was installed to protect the lenders in case their high-risk borrowers default on their loans, a possibility which caused the housing crisis in the first place. This gives them a shield against litigation and allows them to sell their portfolios on secondary markets. Without the latter, they keep the risks on their own books. This is why it’s hard to come by home loans – but an investment property is an entirely different case.
Qualified Mortgage Guidelines do not apply to investment properties. In this area, lenders can therefore provide looser guidelines to help many borrowers qualify.
Financing an investment property with conventional loans can be as difficult as qualifying for a QM home loan. But this dilemma is resolved with stated income loans for rental or investment properties. This is advantageous for many investors who want to take advantage of the opportunity when home prices go down.
Not home loans?
Investment property loans are not considered home loans because they gain revenue for the borrower. Because of this nature, which is more akin to business loans than they are home loans, investors can get away with the qualified mortgage guidelines and offer it to borrowers with less stringent qualifications.
The general qualifications for you to qualify for a stated income loan for an investment property include the following:
- good credit, at least 700, though minimum credit requirement may differ from lender to lender
- at least 12 months worth of reserves in a liquid account
- a ready down payment, typically at least 30 percent of the property’s price
You may notice that these qualifications are still high. That’s because even if stated income loans for investment properties are not covered by the qualified mortgage guidelines, banks still mitigate the risk and make sure their borrowers will be capable of paying back the thousands of dollars they owe. This is beneficial not just to the lender but also to the borrowers themselves. If you are in a tight financial situation, you might be better off delaying the financing now, or you risk getting into a bigger trouble.
Different lenders and banks vary in their guidelines and qualifications. It is best to inquire around before you make a decision on who to get financing from.