Hard Money Commercial Loans Versus Commercial Stated Income Loans

Borrowers that have “issues” with their commercial mortgage requests are often forced to consider either a hard money commercial loan or a stated income commercial loan. Neither program will have terms that most borrowers are used to, but both can be a solid solution given the right (or wrong set of issues) for the borrower. Despite both loans being gear towards difficult loans to get done, they both fill different niche situations.What are the main differences?Commercial stated income loans are exposed to fill the niche of borrowers that collect enough income to qualify for the loan, but just don’t show it on their financials. The programs are often structured more as a long term finance option. Fixed rate period range from 3 to 5 years, with a few lenders going out to 30 years fixed. Amortization periods range from 20 -30 years.In contrast, many private money lenders often don’t care or ask for financials, they are instead interested in the equity within the property. They normally will only lend to 60% loan to value, and that is often a discounted value. Keep in mind however that all private money lenders look at deals as they feel fit and often will underwrite a loan request with all financials and documentation required. The holding period is short term with 12 to 36 months being the norm for lengths of loans.Another major difference is prepayment penalties. Hard money commercial loans often do not have these (some do they call them exit fees) while stated income pre-pays are expensive. For example most change 10% for 5 years with a 2 or 3 year lock out and or some combination. This alone can be the deciding factor on which route you should look at. For example if you’re trying to stabilize a property than refinance or sell, you definitely don’t want to go stated.Rates on hard money are currently around 12% – 16% with 3 -6 points. Rates on stated loans range from 8% to 14% depending to the details. Loan to values is another distinguishing feature. Stated loans can go as high as 90% financing while hard money will rarely exceed 65%.
Which should you look at?The planned holding period and existing loan to value often decide for the borrower which is a more viable route. For example, if the borrower is trying to get 75% LTV on a cash out refinance there’s basically no hard money lender would even consider that deal. Or say, the owner want to sell the property in a year or two the prepayment penalties on a stated deal will likely make it just too expensive for the borrower.