Most lenders rely on either cash flow or verifiable income before approving a mortgage. This convention makes financing difficult for self-employed borrowers and has many rental property investors seeking alternate methods of financing a rental property.
After the mortgage crisis of 2007-2010, Congress enacted the Dodd-Frank Act…which heavily regulated mortgage lenders. Until then, mortgage lenders were fairly lax about documenting a borrower’s ability to repay a loan. Afterward, loans where borrowers could merely declare their income without verification, such as Stated Income loans, were rendered illegal.
Mortgage for a Rental Property
Real estate investors, looking for a mortgage for a rental property, will be happy to learn that Stated Income loans are back. Falling under the umbrella of “alternative documentation loans” or “cash flow loans for investors,” these investment property loan options, (sometimes referred to as no-doc mortgages) are geared for self-employed borrowers hoping to purchase or refinance an investment property.
Stated Income loans ease the application process, and are essential for self-employed borrowers trying to qualify for a non-owner-occupied property – as income documentation and verification are no longer required. No more bank statements, tax returns, or IRS form 4506.
Lenders offering loans with alternative income documentation requirements are often referred to as “non-QM (qualifying mortgage) lenders”. The “non-QM” designation simply indicates that the loans may not be sold to Fannie Mae or Freddie Mac.
These loans are preferable to hard money loans – which carry a higher interest rate and are usually due within one year. Stated income loans are available on a variety of adjustable-rate mortgage terms (3, 5, 7, and 10-year ARMS), as well as a 30-year fixed. Interest rates on this program generally run higher than traditional mortgage (QM) loans, but the borrower will be able to refinance into a conventional loan after a 3-year period.
Investment Property Mortgages
Stated Income Investment Property mortgages can be used on both single-family and 2-4 unit dwellings. Loan limits can go as high as 3 million dollars.
With traditional mortgages, lenders will only use your existing income when qualifying you for a loan. As such, anticipated rental income is usually excluded when lenders issue traditional mortgages. Because of these practices, real estate investors often have difficulties finding real estate investment financing.
Currently, however, there are loan programs that do not require borrowers to verify their income. The ability to repay lending restrictions under the Dodd-Frank Act do not apply to real estate investors and non-owner occupied loans. Some lenders are starting to approve investment loans based on the expected rent roll of the property.
“These loan programs are essential for real estate investors,” says Darryl, of Strategic Homeowner Solutions (SHS). “Many of my self-employed clients are unable to qualify for a loan based on their actual adjusted gross income on their tax returns.
Most real estate investors maximize their tax deductions to reduce their adjusted gross income (AGI), and are often receiving cash flows not shown on their tax returns. The Stated Income program allows my clients otherwise unattainable financing opportunities.”
Rental Property Loans
To qualify for these Rental Property loans, borrowers will need to have verifiable employment and assets, a decent credit (650+ FICO score) as well as a decent amount of reserves (usually 4 months worth of mortgage payments).
A minimum of 20% down payment is usually standard, but part of the down payment may be gifted from a family member or even the seller. Since there is far less verification with Stated Income loans, these mortgages can be approved and funded relatively quickly.
Mortgage Rates for a Rental Property
The mortgage rates for a rental property usually carry higher interest rates than traditional mortgages, yet are more flexible than hard money loans. That being said, this type of investment property financing makes a lot of sense for the real estate investor.
Interested borrowers can now find loans to buy, or even refinance, properties that they could not finance otherwise based on verifiable income alone. In addition, rental property mortgage refinance is an available option.
Best Rental Property Loans
Another reason that the Stated Income programs are considered the Best Rental Property Loans is that refinance with a cash-out option is available. This is a great flexible strategy for tapping into your property’s equity.
Real Estate Investment Financing
When it comes to real estate investment financing, there are plenty of investment property lenders out there, but SHS is known for their fast funding times…with competitive rates, too.
Let our satisfied customers speak for us…
“Danny was great in getting me qualified and getting the loan funded quickly!” – Heidy P.
“The stated income loan program has been a godsend. I could not document my income, but was still able to obtain my property in under one month – and no financials were necessary.” – Tony C.
“Danny was very helpful with the cash-out refinance process. When I decided to refinance my investment property with cash out, SHS did an amazing job. The process involved very little paperwork with a very fast turnaround time. Thanks SHS!” – Barclay B.
Call Strategic Home Solutions today to learn more about financing a rental property through investment property loans.