Stated Income Loans for Freelancers and Investors
If you have ever applied for a traditional bank loan for your business, you have probably experienced the complex requirements for income and capital verification that tend to go with them. Whether you’re applying for a real estate loan, something to cover new equipment, or a credit line, banks require businesses and investors to document their income before getting a loan. This makes it difficult for startups and freelance professionals practicing alone, because in both cases documenting income clearly is an onerous task.
That’s where stated income loans come in. They are approved on collateral, credit rating, and the borrower’s statement of income. It’s a lot easier for an investor whose income is derived from several long-term rentals and a few short-term flips to state an income based on tax returns and a quick look at business projections, and the same is true of many other people with non-traditional income sources.
What Is the Application Like?
Since these loans are based on a statement of income without all the backing paperwork, the application process is a lot simpler than it is with traditional loans. Borrowers need to provide the basics in terms of identifying information, income estimates, and documentation of the collateral in ways that are similar to other loans. The income generated by that property is the basis of its valuation, though, not the market value of the building if sold. As a result, verifying the collateral is as simple as verifying your ownership and signing the appropriate agreements.
Interest Rates and Credit Requirements
It is a lot easier to get approved for a stated income loan than a traditional bank loan, but your credit score plays a pretty big role. While the requirements are not as stringent as bank loans, an average or better personal score is typically required. The credit score and asset value offset the lender taking your income statement on faith by showing you have something to secure the loan and a history of repaying debt on time.
Like many traditional loans, the interest rates for stated income loans are better for those who ask for a lower LTV and those whose credit scores are good or excellent. If your score is average, you can lower the cost of most loans by securing them with a property that is well in excess of the minimum value required by the lender. This works because the loan industry operates on risk assessment, so if you lower the risk by offering more valuable collateral, the lender can more easily offer you a less expensive loan.