Investment loans are not as straight forward as the typical home mortgage. In conventional mortgages, borrowers usually offer lenders paystubs and other documentation to verify their income and earnings. May investors don’t possess income statements from an employer especially if they own a business, are self employed or receive much of their income in cash. Most business owners “write-off” many expenses, so they show a smaller net income at the end of the year than they actually have. Based on the lower, reported income they may not qualify for a full documentation loan.

Limited or low doc loans were created to help this type of borrower. Low doc loans, often called stated income loans, are a good choice for entrepreneurs or potential investors who want to gain further income yet they do not have a normal job position or consistent salary. Many low doc loan recipients have unique and complicated situations and the income they can apply to a mortgage payment cannot be documented accurately. For example, if you are a property owner and you are renting out a unit, your lender may only accept 60% of your rental income because in most cases the other 40% goes towards maintenance. However, this may not be an accurate picture of your rental income if you perform most of the maintenance on your units yourself, your maintenance costs may actually be only 20% of your rental income. In your case, a low doc loan may be the best choice.

What paperwork is required in a low doc loan?

With a low doc loan lenders will not request any proof of income, but they may ask to see just about everything else. Lenders will vary in their requests; some may not request financial statements or tax returns, yet some will want to see a full gamut of paperwork. You are required to apply in writing and sign the agreement and a declaration which substantiates your income claims.

Requirements

• You will need higher credit scores to qualify for the same loan you would with full documentation.
• Lenders will view the income you stated and verify it makes sense.
• Lenders like to see at least two years of stable income from a business or self employment. If you worked less than two years, the lender may want to verify your previous position. If you only worked for one year, but you are taking educational courses in the same line of work as your self-employment, you may also be eligible. Generally, any work less than one year would not be eligible for a loan approval.
• Choose a lender that employs loan officers who understand these requirements. They must be skilled in reading tax returns and understand whether or not you are eligible for a loan before you pay for any related expenses.

Features of Stated Income Loans

Generally, the features for stated income and conventional loans are the same since they both offer fixed rates and adjustable rate options. However, the maximum loan amount is often limited to 80% and in some cases even lower. You will need to put down a large down payment to qualify for a low doc loan.

Most low doc loans offer higher interest rates than conventional mortgages due to the higher risk. You can find, however, some lenders who will offer the same interest rates if you have excellent credit and a sizable down payment. Each lender will differ in their requirements as will each borrower in what he/she has to offer.

Availability

Traditional lenders that sell loans to Fannie Mae or Freddie Mac will not offer you a stated income loan; however, smaller lenders may take your request. Even with the availability of some low doc loans, the requirements for approval have skyrocketed and stricter qualifications will apply. Fill out this simple form to receive more personalized information about low doc loans.