Using Stated Income Loans for Commercial Real Estate

Getting financial backing can involve a lot of paperwork, and if you’ve been in the commercial real estate business for a while, you may find it tedious. The good news is that being a successful businessperson means you have credibility, and financial lenders are eager to keep a good relationship with a client going. This is when you should ask about stated income loans. Unlike traditional loans, you do not have to prove your income by providing a lender with tax returns, leading to an expedited loan process.

A stated income loan is usually offered to wealthy individuals with a good track record. This kind of loan comes under various names and has different terms according to lender. For example, some stated loans will require you to state and verify your assets. However, there is a stated income-stated asset loan that only asks you to state your assets without verification. Lenders may also tie loan approval to your credit score. Many lenders are pleased with a 700 score, but some can go lower to about 620. Be sure to check different lenders and compare the terms.

Although you do not have to prove your income with tax returns, you still must show you can pay off the loan. One way is to provide bank statements, which show how your cash comes and goes and the level of your reserve money, which may be needed if you have income interruptions. Stated income loans can also be declined if your stated income does not match what someone in your profession is expected to make. Finally, your lender will want to verify you have filed tax returns and your income is reported to the IRS. Tax problems may be a sign of poor financial management as well as opening up assets to tax liens.

A stated income loan generally has added costs over traditional loans. Since lenders are incurring more risk by not requiring proof of income, you may have to put down a larger down payment of 20 percent or higher. Also, interest rates for stated income loans are higher than the typical market rates, often .25 percent to .50 percent more than a traditional loan. Still, if money is not an issue, these tradeoffs will result in you getting approved much quicker.

It’s important to make sure your cash flow is strong or you have large reserves before pursuing a stated income loan, but if everything is in order, the end result of an expedited financing process and a good commercial real estate investment will be well worth it.