Stated income loans in the USA are bouncing back into the market – somewhat.
Two decades ago, stated income loans became notorious because it is one of the major factors of the housing market downfall. How? Mortgagees (lenders) were approving mortgagors (borrowers) as per the income mentioned on their loan application and didn’t ask for any income documentation to verify the same. Thus most of the borrowers defaulted on loans.
With the pronouncing of the Frank-Dodd Act of 2010, stated income loans USA for owner-occupied properties are prohibited. Lenders have to verify and document the borrowers’ ability to repay loans with assets or income. (As real estate investors aren’t acquiring an owner-occupied home. Therefore for them, stated income loans still exist.)
Somehow that leaves a disadvantage for self-employed borrowers like business owners, independent contractors, financial advisers, accountants, insurance agents, etc. But fortunately, the good news is that there are bank statement loans that meet self-employed borrowers’ needs.
Stated Income Loans for Self-employed Borrowers
Self-employed individuals may find it tough to qualify for traditional loans because of tougher documentation and fickle income. With bank statement loans – mortgagees use different ways to check the qualification but still have to meet the repay standards mentioned in the Frank-Dodd act. In general, to qualify for a bank statement loan, the lender looks at the following things:
- 2-year timeframe: A self-employed borrower must have at least two years of experience with constant income.
- Debt-to-income ratio: The ratio that decides the maximum loan amount.
- Down payment: These loans require larger down payments. A borrower with excellent credit may require putting 10 percent down.
- Credit Score: The higher the credit score, the higher the chances of receiving bank statement loans. You can even qualify with a lower score but you are going to be charged a higher interest rate.
Need Real Estate Loans, Go with Stated Income Commercial Loans
Stated income loans are not for owner-occupied properties. But if you are a real estate investor or looking to purchase an investment property, doors are open.
It is a big help for borrowers who are planning to buy a non-occupant property. Get stated income commercial loans without comprehensively documenting the income or providing tax returns. Usually, these are the following parameters to qualify for stated income loans:
- Up to 65 percent loan-to-value (LTV) for offices, warehouses, car service shops, and self-storage.
- Up to 90 percent LTV on non-owner occupied investment properties.
- Up to 75 percent loan-to-value (LTV) for 5+ units multifamily and mixed-use. Must have debt-service coverage ratio (DSCR) at 1.25 and credit about 700 to gain 80 percent of LTV.
- A minimum 680 credit score is required.
Stated Income Loan v/s Conventional Loan
How can you decide between a stated income and a conventional loan? If you have some confusion, you can consider the below-mentioned comparison between stated income and conventional loan. It might help you better understand.
- Stated income mortgage rates are usually higher than a conventional loan. However, they are not going beyond a standard limit and usually are reasonable.
- A conventional loan requires higher credit scores where stated income allows lower credit scores.
- You have to pay slightly small down payments in conventional loans compared to stated income commercial loans.
- When the down payment is lesser than 20 percent, a conventional loan requires private mortgage insurance, and even the loan may be canceled. On the other hand, stated income loan has made mortgage insurance mandatory unrelated to the down payment. And it can’t be abort or canceled unless you refinance the loan into conventional.
If you have doubts, then contact VP Capital Lending. A hub of unique commercial real estate lending programs gives you quick access to the capital you need.
What We Are Saying That
The stated income loans allow self-employed borrowers to qualify for loans where conventional loans will not work. The borrower doesn’t have to provide tax returns for qualification purposes. Interest rates might be competitive even with the condensed documentation.
You might have to deposit about 10 percent as a down payment to stated income lenders. You have to submit income documentation. There is no stated income FHA (Federal Housing Administration) loan. The interest might be higher, and these loan programs are not easy to find.
