Over the past few years, stated income loans have become popular both in Florida and throughout the country. Stated income loans allow you to apply without providing a W-2 or tax returns to prove your income. You are taken “at your word,” though you typically need to show your income through bank statements.
Who uses stated income loans? Individuals in diverse walks of life may choose them over regular loans. These include self-employed borrowers, independent contractors, freelancers, entrepreneurs, business owners, investors, and others who find the process more convenient and expedient.
While stated income loans are fast and easy to apply for in comparison to traditional loans, they are not necessarily easier to qualify for. Requirements may remain just as stringent. Lenders do want to be confident that you are able to afford the loan.
To maximize your chances of approval and to facilitate a fast, smooth application process, take the following steps to prepare before you apply for a stated income loan.
1. Check your credit score and raise it if necessary.
Your credit score is a key financial data point which lenders take under consideration regardless of whether you are applying for a traditional or stated income loan. It is a numerical representation of the level of risk which you present as a borrower.
If your credit score is fair or poor, you should work on raising it before you apply. Those with good credit are 1-more likely to be approved, and 2- generally offered better terms and rates.
To see where you stand, order your credit report and score, and check over the info in your report for accuracy. You can contest inaccurate entries to have them removed, which can boost your score.
2. Ensure that you can cover the down payment amount.
Your loan is probably going to include a down payment. If so, try and estimate how high it is likely to be, and then make sure that you have enough cash on hand to pay it without straining your finances too much.
3. Build up sufficient cash reserves.
Speaking of cash on hand, some lenders may ask to see cash reserves. This should come as no surprise; if you are your own boss, you probably face significant levels of uncertainty in your business. Demand for your products or services may rise and fall, and you may go through dry periods. And if you go out of business, you’ll have no unemployment insurance to fall back on.
How much cash do you need in reserve? A good rule of thumb is anywhere from 6 months to 1 year’s worth of reserves. They should be sufficient to allow you to fully pay all of your bills each month (including the amount due on your loan plus interest).
Once you have run the calculations and determined that you have these reserves, you will need to pull together the paperwork which proves that you are good to go in this regard.
4. Look at your debt-to-income ratio (if this is helpful).
In traditional lending situations, your debt-to-income ratio is one of the most important considerations in determining whether you should be offered a loan. It is a simple way for a lender to determine whether you can afford to take on more debt without destabilizing your finances.
It is possible that you are choosing to apply for a stated income loan in part because your debt-to-income ratio isn’t truly representative of your financial means (if you’re a real estate investor, this scenario is common). If that is the case, working toward improving your ratio might not make a lot of sense.
But it is important to at least know what it is, and to have an explanation and supporting documentation ready. And if you do have a solid debt-to-income ratio, it may help you qualify for a more competitive loan than if you didn’t. If that is the case, be sure and emphasize it when you are applying for your loan, even if you are using the stated income method. You should be able to back it up with bank statements.
5. Gather documents that verify your source of income.
Even though you are not showing your income with tax documentation, you are going to be expected to verify its source. Have paperwork ready to show that you are indeed gainfully employed or self-employed.
6. Get bank statements ready which are sufficient to document your income.
A stated income loan is also sometimes referred to as a “bank statement loan.” This is because you are expected to back up your word when you state your income by showing bank statements that verify that your income is what you claim it to be. So, get these prepared before you apply.
Apply for a Stated Income Loan in Florida Now
Ready to skip the W-2 and apply for a loan the easy way? Call us today at (786) 220-1100 to schedule your consultation for a stated income loan. Let’s get you the financing you need to achieve your goals.