By: LendVer Staff –
Understanding Stated Income and Full Documentation Loans
When searching for commercial or investment residential real estate financing, you’ll encounter two common loan types: stated income loans and full documentation loans. These terms refer to how lenders verify your financial information to assess your ability to repay the loan. Choosing the right option depends on your documentation availability, credit, and property cash flow.
Full Documentation Loans
Full documentation loans require detailed financial verification. Borrowers must provide tax returns, profit and loss statements, balance sheets, and bank statements. Lenders may also request IRS tax return transcripts to confirm reported income.
Lenders use this documentation to calculate debt-to-income (DTI) and debt-service coverage ratios (DSCR). Most traditional lenders require a DSCR of 1.25 or higher, ensuring your personal or business income sufficiently covers mortgage payments.
Because borrowers are verified, full documentation loans often carry lower interest rates. If you can provide comprehensive financial records and maintain a high credit score, full documentation loans are typically the preferred option, offering the most favorable terms.
Stated Income Loans
Stated income loans, sometimes called “no-doc” loans, do not require income verification through tax returns. Instead, lenders qualify borrowers based on the property’s cash flow. The DSCR is calculated from rental income minus expenses, often requiring a minimum of 1.25 times the mortgage payment.
Stated income loans usually have faster approval times and less paperwork than full documentation loans, though rates are generally higher due to increased lender risk. They are ideal for borrowers who cannot produce tax returns or whose reported income does not meet full documentation requirements.
Which Loan is Right for You?
Choose a full documentation loan if you can verify income, want lower rates, and prefer traditional lending terms. Opt for a stated income loan if documentation is limited or unavailable, or if your loan approval depends more on the property’s cash flow than your personal income.
Both loan types provide flexible financing solutions for commercial and investment real estate. Understanding the differences can help you select the option that best fits your financial situation and investment goals.