A stated income loan is where the income is stated by a loan applicant but not verified by the lender. This is most often the situation for freelancers, self-employed individuals and those for whom tips are their primary pay because their incomes vary and can be difficult to document. As with all loans, there are some pros and cons to be aware of.
Less Paperwork Equals Faster Turnaround
Since there is less paperwork than a conventional loan, stated income loans have a quick turn-around time. This is a serious consideration, particularly if you’re looking at commercial real estate where time is of the essence. Even if you have everything you need to take out a conventional loan, an alternative loan may be the difference between getting the property you want and losing it.
No Income Verification Equals Less Stress
Let’s face it, getting a loan can be stressful under the best of circumstances, but throw in being self-employed with inconsistent income or income from many different sources, and it takes the stress to a whole new level. A no income verification loan is perfect for these situations since there is nothing to verify, allowing you to breathe easier as you avoid trying to quantify your income. That said, you will still need to provide bank statements detailing two to four months to establish your ability to repay the loan.
Higher Risk Equals Higher Down Payments
There is a high-risk factor in making loans without verifying income, so loans based on your reported income require a minimum 30% down payment. That is significant compared to what you would need for a traditional loan.
High Risk Equals High Rates
Again, a loan with self-reported income is a high risk for the lender, and you will pay for the risk they’re taking in the form of higher rates. And don’t think that just because you’re paying higher rates and a higher down payment you won’t need a decent credit score. The lender may not be verifying your income, but they will want to see your payment history.
If you are a gig worker or self-employed with an income that is difficult to demonstrate, you aren’t out in the cold when it comes to getting a loan. If you have the credit score to appease the lenders and cash on hand to cover at least 30% down, check out a stated income loan before you write off that purchase as unattainable.