What are the pros and cons of liar loans?
Now that you know a little bit more about liar loans and how they work, it's time to take a look at the pros and cons behind these unconventional loans. With that in mind, we have laid them out for you below. Take a look over each one to find out whether or not this type of mortgage loan might be right for you.
The biggest benefit of liar loans is that it's easy to qualify. Essentially, all you need to do is fill out a loan application and submit to a credit check. Particularly for self-employed borrowers, who don't have traditional pay stubs or W-2s, going this route can be much easier than applying for a conventional mortgage loan.
Unfortunately for borrowers, taking out this type of home loan comes with a vast amount of risk. In this case, whether you mean to do it or not, if you overstate your assets on your loan application, you could end up getting approved for a loan that you ultimately can't afford. If you can't afford your payments, there is a significant risk of defaulting on the loan and eventually facing foreclosure.
Additionally, it's important to note that the streamlined application process for a liar's loan does come at a cost. Typically, these loans come with much higher interest rates than your traditional mortgage loan. The higher interest rate is meant to compensate for the higher default risk, but on your end, it would mean a higher monthly payment.
How can real estate investors use liar loans to their advantage?
in today's mortgage industry, stated income loans aren't available to traditional homebuyers. They are, however, available to borrowers who are looking to purchase investment properties. With that in mind, if you're willing to take on the risk, you may be able to use these unconventional loans to your advantage.
In particular, many investors will use this type of loan as a sort of cash advance. For example, fix-and-flippers might use it to finance the renovation stage of their flip and then pay off the loan when the property eventually sells. Essentially, it can be used as a way to borrow money while preserving your cash flow.
The bottom line
Above all, it's important to recognize that taking out a liar loan does come with risk. If you're going to go this route, you need to make sure you have a firm handle on your ability to repay the loan. Additionally, you need to make sure you work with a reputable lender. However, all that said, when used properly, these loans can be a useful tool to help investors grow their portfolios without having to jump through all the hoops of the traditional mortgage process.