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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.

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: Alternative Financing for Rental Properties

February 7, 2017 By Chris Hamler

Stated Income Loans- Alternative Financing for Rental Properties

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.

Consult the experts about your investment plans.

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.

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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