Ultimate Benefits of Stated Income Loan You Just Can’t Avoid

David Cohn
Jun 16, 2021
Stated Income Loans

Securing a traditional mortgage from conventional sources is not always easy for business owners and self-employed professionals with fluctuating incomes.

Do you belong in this category? Then stated income commercial loans might be the right product for you.

This financing solution is what it sounds like—the lender trusts that you’re stating your income truthfully and won’t ask for thorough documentation (such as pay stubs and income tax forms).

Stated income loans can be preferable for specific borrowers in some situations. Many commercial real estate investors also use these loans to take advantage of the benefits of this blog.

But first—What is Stated Income Loans?

A stated income loan (also called a stated asset mortgage) allows borrowers to declare their income without any supporting papers or verification by the lender.

This makes it distinct from traditional mortgages that require a long list of documents proving the borrower’s income and ability to pay.

Stated income loans were primarily designed to make the loan application process easier for buyers whose incomes are difficult to document, as in the case of self-employed business owners, professionals, and those whose earnings depend on commissions and tips.

It largely blamed the stated income loan for the 2008 housing bubble. Back then, opportunistic private commercial lenders and borrowers abused this type of loan.

Lenders made it their goal to clear as many of these loans as possible while borrowers were applying for loan amounts that were much more than they can afford. But this is no longer the case. T

o ensure that stated income loans never cause another real estate crash, the government put specific requirements in place, including more substantial minimum down payments, higher interest rates, and higher minimum credit scores.

These days, stated income loans are primarily used by borrowers who can show substantial savings in the bank and intend to use the loan proceeds to purchase investment properties.

This type of loan is certainly a solid alternative to traditional commercial loans for investors looking to refinance commercial property or buy commercial real estate assets.

What are the uses of stated income loans?

When it comes to property investing, stated income loans are mainly used to purchase a property or improve an existing building.

  • Purchasing a property – Is your business still paying rent on a building or commercial establishment that you are financially ready to own? Did you find a good commercial investment property that you want to add your portfolio to? A stated income loan can help you get the funds you need for the acquisition.
  • Property improvements – Do you already own a commercial space but want to expand a specific portion or maybe add a parking lot? Perhaps you want to change the roof or undertake a similar renovation? A stated income loan can give you the money you need to complete those upgrades.
  • Refinance – Stated income loans may be helpful for borrowers who want to switch from an adjustable-rate loan or a balloon mortgage.

Aside from these, stated income loans are likewise used in non-real estate scenarios.

Some businesses take out this type of financing if they need liquidity to cover their bills, money for working capital, or extra cash to buy discounted inventory while waiting for receivables. It is also widely used in debt consolidation.

You can use the money to pay off the IRS, consolidating equipment leases, pay off business credit card debt, etc.

Benefits of stated income loans

  • Simple application – One of the best things about this loan setup is that it doesn’t require a long list of documents that prove your income. Traditional banks will apply all sorts of complex formulas in assessing whether or not you truly make enough money to afford the loan. You have to produce papers proving that you have a stable source of income and excellent credit. This is not the case with stated income. The lender looks at the commercial real estate asset you want to purchase, and if they find that it satisfies their commercial real estate lending standards, they give you a schedule of payments.
  • High chance of approval - Stated income loan requirements are simpler to understand and meet. For as long as the property’s income value can cover insurance, mortgage, and taxes, you will likely be approved.
  • Ideal for borrowers with a regular income – Like many self-employed individuals and business owners, you probably don’t receive a consistent paycheck month after month. And if your business is cyclical, you probably have to feast and famine cycles—perhaps making a lot of money this month and much less the next. Stated income commercial loan lenders understand this. They can offer loan terms that will suit your situation.
  • Quick processing – Because there’s less documentation involved, the turnaround time is also significantly shorter. This is an excellent use for investors who are looking to grab time-sensitive deals and limited-time opportunities. Do you need to move quickly on a commercial property and need cash fast? You can fund a stated income loan in a matter of days.

Now that you’ve seen the many benefits of stated income loans, you may be wondering if there are any drawbacks to this kind of financing solution.

Perhaps the biggest disadvantage is the higher interest rate associated with these types of loans. After all, stated income is riskier—and is naturally more expensive compared to a conventional loan.

For the same reasons, it’s much easier for borrowers to bite off more than they can chew and eventually default on the loan. This is why it’s essential to be honest about your financial situation before you decide to borrow money in this manner.

As a borrower, it’s your responsibility to determine whether you can genuinely make a loan without putting yourself in a financial bind. Just because you’re approved doesn’t mean you can keep up with the monthly payments over the long term.

Should you get a stated income loan?

The answer depends on your situation and your goals. It’s best to talk to a commercial real estate placement professional about your project so you can understand that a stated income loan is a suitable choice for you.

Don’t hesitate to contact us here at Capital Investors Direct. We specialize in creating customized and investment-specific loan products for all kinds of borrowers.

You can trust us to thoroughly evaluate your circumstances and requirements and then structure the best loan to suit your project.

And we don’t stop there—we also continue to work with you well after receiving the financing you need.

You can count on us to provide further assistance whenever necessary as your project progresses.