A stated income loan is a financing solution that may be helpful for people who cannot easily provide extensive documentation about their assets and earnings. This may include self-employed or freelance workers.
Historically, stated income loans are appealing in that they do not require a great deal of documentation, are processed quickly, and have high loan-to-value rates. There are, however, some disadvantages to this type of loan. Down payments and mortgage rates are generally higher than traditional loans, as they are considered higher risk by lenders. Commercial stated income loans are also not available if the borrower needs more than 70% if the total purchase price for a property.
If a commercial stated income loan still seems like a good fit to you, here’s what you’ll want to have and need to know to apply.
Stated income loans do not require income verification, so the only real metric lenders can use to determine the borrower’s viability is their credit score. In this situation, the primary factor banks or private lenders will be examining is your previous loan repayment history.
Ability to Cover a High Down Payment
As mentioned before, down payments are higher with stated income loans, and not being able to cover the down payment will stop the process in its tracks immediately. You must be able to pay the down payment upfront from savings or other refinancing options.
While income verification and tax returns are not required for stated income loans, lenders do need to have an idea of your ability to repay a loan. Between your credit score and 2-4 months of bank statements, lenders can typically assemble a fairly accurate picture of your current financial situation, which is the main concern for this sort of loan.
If you’re confident that a stated income loan will work for you, and that you’ll meet the requirements, the application process is quite simple. While you should certainly “Window-shop” and make sure you’re working with the lender who will offer the best terms and rates, once you’ve done so, a simple paper application is all you’ll need to process if you’re able to provide the bank statements and down payment as previously discussed.
For many borrowers, a stated income loan is a good alternative to a traditional bank loan. Now that you know what you need to prepare to apply, you can determine if it’s right for you.