Tuesday, 01 January 2019 00:00

What You Need to Know About a Stated Income Commercial Mortgage

Stated Income Commercial Mortgage Rental Home FinancingFor the vast majority of people, applying for a mortgage follows the exact same list of steps. Almost everyone will go to a traditional lender and pick one of the typical home mortgages, most likely backed by FNMA.

This isn’t always an option, though.

If you don’t have the kind of consistent monthly income that traditional lenders like to see, it’s going to be nearly impossible to convince them to loan you money for a home.

The same goes for investors who want a mortgage to purchase another rental property but already own a well-stocked portfolio. Unfortunately, owning all those homes can actually hurt your chance of buying another, even if you don’t have any missed payments in your history.

Though both groups are very different, both often end up choosing the same solution: a stated income commercial mortgage.

 

What Is a Stated Income Commercial Mortgage?

A stated income commercial mortgage is exactly what it sounds like. It’s a loan you can apply for by simply stating what your annual income is. This means there is no need for personal or business tax returns.

Instead, the lender will primarily look at the property’s ability to help the borrower pay back the debt by calculating its ROI.

The lender will also request the following documents as part of the application process:

 

  • Appraisal

 

  • Capital improvements summary showing which expenses are capital and which are nonrecurring

 

  • Current income and expense statement that covers the year-to-date

 

  • Income and expense statements for the two most recent years

 

 

  • Sampling of lease agreements

 

  • Tax bill

 

They will probably request a higher-than-average down payment, as well, and proof of sufficient reserves, something we’ll cover in more detail a bit later.

3 Benefits of Taking Out a Stated Income Commercial Mortgage

There have never been more financing options to choose from if you’re in the market for a new home Why, then, would you decide to apply for a stated income commercial mortgage instead?

There are actually three main reasons these loans have become so popular in recent years.

1. Far Less Paperwork

For veteran property investors, one of the most striking features of applying for a stated income commercial mortgage is just how little paperwork is required for the entire process. As we covered above, you don’t have to provide documentation that verifies your income, which is an especially welcomed benefit to those who are self-employed.

You also don’t need to provide a 4506-T or even submit to a debt-to-income analysis.

In fact, you’ll probably already have all of the aforementioned information that is required because you would have gathered it while researching the property. Just turn it over to the lender and the paperwork-portion of the process is over!

2. Minimal Processing Time

Not surprisingly, the processing time for this type of loan is a lot quicker than what most investors have come to expect, too. You could receive all the funding you need to purchase a new property in a matter of days. In real estate, when time is such a crucial factor, that’s a massive advantage.

The main reason for this shorter processing time is because, unlike with traditional mortgages, the lender doesn’t care about your financial history. If you plan on using the home as a rental property and the rent you can expect to collect will make it easy to pay back the loan, you’ll basically be approved.

3. No Need for a Regular Monthly Income

This may not seem like a major benefit for many people, but if you’re self-employed, it’s probably the reason you found out about stated income commercial mortgages to begin with. Without these types of loans, most self-employed individual would have to remain lifelong renters.

Contractors, freelancers, and other self-employed professionals know that their career paths make them all-but-ineligible for the vast majority of mortgages because lenders want to see that they receive a consistent paycheck every single month. Even self-employed people who make a higher-than-average income often don’t see uniform paychecks.

As loan eligibility is based almost completely on the property, making different amounts every month no longer disqualifies these individuals from owning a home – or even more than one.

Is a Stated Income Commercial Mortgage Right for Me?

Given the three reasons we listed above, stated income commercial mortgages may seem like a no-brainer.

However, there are a couple potential drawbacks.

One is that most lenders will need around 30% of the property’s price for a down payment. Another is that, after that down payment, you’ll probably look at higher interest rates, too.

Again, if you’re self-employed, there’s not a whole lot you can do. Your best bet is to save up enough for that down payment and set aside a sufficient amount to help with those monthly payments.

This type of financing is also very popular with people who invest in rental properties. For this group, the drawbacks of a stated income commercial mortgage aren’t as discouraging. In many cases, they’re actually nonexistent.

If you’re an investor who is struggling to secure financing from traditional lenders because your portfolio already has “too many” properties, these mortgages may be the ideal solution. Provided you have enough for the down payment, your tenants’ payments should be sufficient to cover your monthly mortgage payments, even if they do carry high-interest rates.

Furthermore, stated income commercial mortgages generally don’t carry any prepayment penalties. So, if you already have a stacked portfolio, you could use some of that cashflow to help pay down your latest acquisition, lessening the impact of those higher interest rates.

Do You Need a Stated Income Commercial Mortgage ASAP?

Whether you don’t have the consistent monthly income most lenders require, or your problem is a robust portfolio of rental properties, a stated income commercial mortgage may be the ideal solution.

At Rental Home Financing, we love helping people who have struggled to secure mortgages. We’ve even designed a straightforward, application process that we’ll process right away, so you can move forward quickly.

Apply for a stated income commercial mortgage right now to see if you qualify.

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