Stated Income Construction Loans

Generally speaking stated income construction loans are not any different than stated income purchase money or refinance mortgage.

The biggest difference between stated income construction loans and regular stated income mortgages is the fact that construction loans come in much smaller variety of types than purchase money or refinance mortgages and that the reserve requirement are somewhat more stringent.

Cash reserve requirements for a construction loan vary depending on the type of program and the loan amount, typically set at between 2 to 12 months worth of principal, interest taxes and insurance of the subject property. These must be seasoned funds, which imply that that borrower must demonstrate that the funds were in his account for at least six months.

The second funds rule does not apply to the amount being invested into the project so long as its source can be verified. For example if you planning on applying for a construction loan in combination with a lot purchase and you have sufficient equity in your present home, you could use an equity line of credit for the down payment and closing costs of the transaction.

Most construction loans have a built in interest reserve account which will make the payments on the construction loan during the construction period. This means that though interest is being charged on the outstanding balance on monthly bases the borrower does not actually cut checks and make payments. This relives the home builder from the responsibility of coming up with two housing expenses.

A stated income construction loans is not a license to lie about income but rather a convenience offered to those who have other incomes including family trusts side jobs and/or too many deductions and or very complex tax returns or who do have income that is subject to a lot of deductions. Underwriters will use common sense to determine if the stated income is a realistic one and very often check it against existing average income statistics.

Depending on the program used they typically require the borrower to prove the availability of cash reserves but not income. The only documentation requirement for the stated income is normally a letter from the borrower’s CPA or Tax Preparer, simply stating the fact that he/she is self employed.

We also offer what’s known as a No Income Qualifier. This program also requires cash reserves but it is meant for those who have independent means of income as well as a job. In this case the actual source of income (job) is put in the application but the income field is left blank.

In conclusion; there is a residential construction loan program for most every circumstance imaginable.

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