Non-QM is the alternative to Conventional and Agency Loans
To qualify for conventional or agency loans, the borrowers must show tax returns and W-2 or 1099 income for at least two years to better qualify. Many folks who are self employed or business owners use expenses to offset their tax liabilities on their tax returns. This serves its purpose for tax reasons, but is a burden when trying to obtain a mortgage since you must also include those expenses to reduce your monthly income. Hence the reason for Non-QM lending! For owner occupied residences, Bank Statement and Asset Depletion loans are available. For real estate investors, the Debt Service Coverage Ratio loan came to be.
Owner Occupied Financing
Bank Statement Loans
These loans will look at the deposit history in your bank account(s) over a period of time, usually 12-24 months, however some lenders will do them for 3 or 6 months too. Once all the qualifying deposits are added up, an expense ratio is applied based on the type of business you operate. This will yield your monthly qualifying income that is used to calculate your Debt to Income ratio. The rest of the loan works much like any other conventional or agency product, but no pay stubs or tax returns are needed. Although, these are non-TRID regulated loans, many lenders choose to follow Fannie/Freddie guidelines closely.
Asset Depletion Loans
These loans are typically for those on fixed incomes or are high NET Worth individuals. A variety of methods are used to determine the qualifying amount of assets you can use in the calculations of your assets, but the fundamental way they are applied is the same. A portion of your retirement, insurance policy’s cash value, stocks, bonds, money market accounts, cryptocurrency, etc… is weighted to a total that is divided over a certain number of month to an expected depletion rate. This also varies by lender. The lower the depletion rate, the higher the monthly income will be to use in the DTI calculation.
For example, a borrower has $1,000,000 in their retirement account. This lender allows up to 90% of that balance to be used; so $900,000. The depletion rate is 7 years, or 84 months. $900,000 / 84 Months = $10,714 in qualifying monthly income that is used to calculate the DTI for the loan. Pretty neat, huh?
Non-Owner Occupied Financing
Most lenders do allow non-owner occupancy for both Bank Statement and Asset Depletion loans as well, but when financing an investment the Debt Service Coverage Ratio (DSCR) is a far superior product that can be financed with nearly half the documentation and no income requirements.
Find out the more detailed info on the DSCR Program.
No matter what reasons you get rejected from the banks or other lenders, give us a call to see how we can help you get approved. We love working with investors and business owners to get into homes of their own.
