Qualified Mortgage Guidelines have made it difficult for many people to become homeowners in recent years. If you do not fall within the standard guidelines of high credit scores, low debt ratios, and verifiable income, it is hard to get qualified. QM Guidelines protect lenders against litigation as well as allow them to sell their portfolios on the secondary market. Without that ability, they are stuck with the loans on their own books, meaning the risk is theirs to keep. One area this does not apply is with investment homes – there are no QM guidelines that must be followed – every bank is out for themselves, so to speak.
Business Loans don’t Count
Because so many people have turned to real estate to make a living, the ability to have stated income loans for investment homes is a great advantage and is a large part of the market. These loans are not considered home loans because they help investors make money; these so-called business loans are not covered under the Qualified Mortgage Guidelines, making it easier for investors to provide these loans.
Investment Property Lending Guidelines
Just because investment homes are not covered under the QM Guidelines, however, does not mean that lenders are just handing them out to anyone that states their income high enough. Borrowers still have to go through extensive scrutiny to ensure that they can afford the loan. The last thing banks want is to default on a loan that they have on their books. The general guidelines for this type of loan include:
- High credit score, typically one over 700, but every lender has their own threshold
- 12 months or more of reserves in a liquid account to use in the event that the source of income were to dry out suddenly
- High down payments, typically at least 30 percent, but sometimes a little more or less, depending on the lender
Every bank will have their own requirements based on what they can take on in their portfolio. These guidelines might change from month to month, depending on what they have going on at any given moment. They will treat each stated income loan as a unique loan with its own requirements. This means that even if you have a credit score of 750 and state your income high enough to make it look like you can afford the investment property, you are not going to be handed a loan. The lender needs to verify your income through alternative sources, such as your bank accounts. They need to be able to see the money coming in and out as you demonstrate in your stated income as well as the debts showing up on your credit report. If something does not jive, chances are you will not get a loan.
The stated income loans are definitely easier to obtain for investment properties, enabling you to become a real estate investor and have a lucrative business, but you need to make sure your ducks are in a row. Don’t just assume that you can state your income high enough to qualify – today you need the credentials to back up your statements so that you can get the alternative income loan that you need to become a real estate investor.