Many people seeking real estate loans love looking at different options to find what works best for their budget and type of property they’re interested in.
Unfortunately, for several years, a fairly popular loan type was off the table: the commercial stated income loan. This option requires less paperwork, including detailed information about the borrower’s actual income and employment history.
This option worked well for people who believe they have the funds for a mortgage and have great credit scores but maybe not steady income over the years. This can include entrepreneurs or people who are self-employed or those who work on a contract basis vs. traditional employees. They may be financially successful but on paper may look riskier than the person who has held the same job for the last five years.
With a stated loan, a borrower only has to say how much they make and the source of this income and earning capacity doesn’t have to be verified, including coming up with paperwork saying this.
In exchange for everything moving a little faster and needing to produce less documentation, borrowers seeking a stated income loan may be asked to put down a slightly higher down payment and potentially higher interest rates.
Due to the housing crisis in the 2010s, many lenders began requiring and verifying more info about borrowers, so this loan type was considered riskier so less popular with traditional lenders. But as the housing market has become more balanced, a stated income loan might have some appeal to lenders and borrowers alike, including speed of processing and no pre-payment penalties.
Don’t get confused that a stated income loan will let anyone walk into a lender’s office, make up a number, and be approved. Lenders likely will want to see other documentation, such as bank statements, credit scores, and the ability to pay a loan back, like a standard loan. Any spouse’s financial details are also required if it’s a joint application. They may just not look as closely at employment info.
For more information about this type of loan, visit Magis Funding.