Using Stated Income Loans For Real Estate Investments
Stated Income Commercial Real Estate Loans are a type of loan that is available mostly to commercial real estate companies for the purchase of property without the requirement of verifying a monthly income. The borrower is only required to make a statement of the approximate amount of income made each month. This is an alternative to traditional commercial loans and requires much less paperwork and can be processed more quickly. While it may seem a little risky for the lender, they take extra precautions to reduce the likelihood of the borrower defaulting on the loan.
Large Down Payments
Stated Income Commercial Real Estate loans are generally made to real estate companies, landlords, and house flippers who wish to purchase more property. The loan cannot be used for a home that is going to be inhabited by the borrower. It can be used only for property that is going to be rented by another party or which will be updated and resold for a profit (flipped). Because these loans can be risky for the lender, they often require large down payments. Instead of the typical 20% down that is expected on a normal home loan, the borrower can be expected to put down between 30%-50% in order to secure the loan. This helps ensure the interest of the borrower in the property and reduces the risk of default on the loan.
Excellent Credit History
In order to secure Stated Income Commercial Real Estate loans, lenders usually require an excellent credit history. If a lender is going to make a high risk loan, they want to make sure they are lending to someone who is likely to pay it back. A high credit score shows that their payment history is good and they will likely pay the loan back on time.
A third requirement for a Stated Income loan is often a large cash reserve. Having a large cash reserve shows that they are serious about what they are doing and have the capitol to get it done. They may not even need the loan to purchase the property, but prefer to save their cash for repairs and growing their business. The loan is usually short-term and intended to get them through the repair process.
While Stated Income Commercial Real Estate loans have their drawbacks, they also have many benefits. They are certainly not for everyone, but they are a great way to get a quick loan that will help grow your real estate business.