The Benefits of Stated Income Loans

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The Benefits of Stated Income Loans

The Benefits of Stated Income Loans

With a stated income loan, you complete an application indicating your income without the need for thorough documentation such as pay stubs. This can be preferable in some situations. Sometimes this type of alternative loan is used by people who are struggling to get approved for a conventional loan. Other times it is used because of some of the benefits listed below.

Benefits

Ideal for Irregular Income: Not everyone receives a consistent paycheck every month. For example, many self-employed people may have a feast and famine cycle to their income. One month you may make a lot of money then much less in the next month. This type of loan is ideal for such situations.
Simpler Applications: In this loan setup, you more or less decide whether you can afford the loan yourself. Rather than the bank applying complex formulas to determine if you make enough money to pay back the loan, the lender simply gives you a schedule of payments. You can then determine if it is right for you.
Quicker Processing: There is a lot less documentation to be processed. Therefore, the turnaround time tends to be significantly shorter. Many investors like this because it allows them to take advantage of a limited-time opportunity. For example, if a real estate property is on the market but you need to move quickly, this loan type may be perfect.

Drawbacks

Increased Interest: It is probably no surprise that this loan type is riskier and therefore more expensive. The interest can be somewhat higher than a conventional loan. So, think carefully before agreeing to borrow money in this way.
More Likely Defaults: For the same reasons, it is easier to default on this type of loan. As a borrower, it is important to be mindful of whether you can afford the loan or not. You are more likely to be approved. However, that doesn’t mean that you can keep up with the payments.

Is It Right for You?

There are many situations in which a stated income loan can work for you. For example, you may be having trouble getting approved on a conventional loan. Alternatively, you may not be able to wait for the long processing times of other loans. Nonetheless, there are noteworthy drawbacks to opting for this type of loan.