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.
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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.
Stated income loans have a variety of requirements that differ from standard conventional loans. Because these loans remain on the portfolio of the individual bank, every lender has their own requirements. In general, you need to have excellent credit, at least 12 months of reserves, and a high down payment. Just how high does the down payment need to be? It depends on the factors of your loan.