Stated income loans have been causing a stir. Banks that offer these products promote them as an appealing alternative to traditional mortgages. Many wonder, though, if these loans are fit for property investors.
Those who purchase real estate to turn a profit tend to fall into one of several categories. Flippers are investors who buy property, make modifications and put it back onto the market in a short time. While they usually face high capital gains taxes, the money they earn in just a few months is typically worth their efforts. Of course, not every transaction meant for flipping goes as planned. In some cases, properties end up listed longer than the investor hoped for. Until the transaction goes through, utilities, maintenance and other costs eat into profits.
Landlords make up another category of investor. They may purchase multiple units to rent out at a monthly rate. Ideally, a landlord has no vacancy, and in turn, a steady stated income. When an area or sector has a lot of inventory, property owners may not be able to get their asking price. In some cases, renters negotiate down the monthly payment. In other cases, landlords sacrifice potential income in favor of advertising spaces at competitive rates to draw interest and occupy properties as quickly as possible.
Vacation home owners are a growing group of investors in today’s economy. Their duties tend to be similar to those of landlords, but with more hands-on contact. Each owner decides how they want to rent out their home – some offer different rates for nightly, weekly and monthly occupancy. Most such units are furnished, creating additional maintenance costs. While those who rent apartments and commercial units have to shampoo carpets, wipe surfaces and make repairs whenever tenants evacuate, those with vacation homes have to schedule cleaning more frequently.
Which type of investor are you? What kinds of terms are banks offering for your area? Some institutions provide stated income loans exclusively for owner-occupied property arrangements. Others may be open to reviewing your earnings from property flipping or rentals to qualify you for a type of financial credit.
Stated income loans have helped people with good credit to secure financing even though they were rejected for mortgages based on thorough underwriting. Some of these borrowers are immigrants who pool money together with other relatives to purchase a home.
As you have likely perceived, loan arrangements vary with investment types. The best way to know what your options are is to check with the lenders themselves.