When purchasing real estate, you have several loan options available. Some homeowners and business owners apply for conventional mortgages to make the purchase. Others look to a small business loan. Another option is a stated income loan. What are stated income loans like and how do they work?
The Basics
Stated income financing stands out from other loans mainly because of its application process. With this type of loan, you don’t need to submit income tax returns, pay stubs, or other proof of income. Instead, you just write down the estimated amount you make on the application. This kind of loan is designed to be fast and easy for business owners and other buyers to qualify for.
In contrast, a conventional mortgage requires you to provide several months or years of balance sheets, annual revenue reports, tax returns, and many other business documents. You have to prove beyond a doubt that you’re in a good position to repay the loan. SBA loans are even more demanding when it comes to supporting documentation.
The Benefits of Stated Income Financing
When you apply for a stated income loan, you don’t have to meet the strict requirements that traditional loans have. You only need to provide basic business info and documents related to the real estate you’re interested in purchasing. The application process is straightforward.
This also means that the time required for processing is less than with traditional mortgages. A conventional loan often takes from four weeks to several months to get approved. That’s time wasted while you wait to find out if the transaction is going to happen or not. In comparison, stated income loans usually only require a week or two to go through.
Another benefit of stated income financing is that you don’t need exceptional credit to qualify. Good or average credit is often acceptable. Of course, the better your credit score, the better your interest rates. For businesses that have been turned down for conventional mortgages, stated-income loans are a way to keep the dream alive.
Factors to Keep in Mind
The right loan for your needs depends on the reasons why you’re purchasing the property and your financial situation. Conventional loans have the advantage of lower interest rates, but they’re slow and complicated. A stated income loan costs more but offers greater flexibility, speed, and convenience. Whether you’re interested in fix-and-flip projects, purchasing real estate for your company, or reselling, this option provides many advantages.
