Unconventional Mortgages - Sounds Too Good To Be True!

Buying & Selling Real Estate
5yFollow

Unconventional Mortgages - Sounds Too Good To Be True!

Stephanie Wells
Member since 2020 · 25 posts · 8 votes

I was speaking with a lender who told me about unconventional mortgages where you don't qualify based on your income, but instead on your credit score and how well the property cash flows. I had no idea this even existed, and am wondering if you all have experience with this type of loan and what the catches are, as it sounds too good to be true. Does the property have to have a certain amount of cash flow? A big cap on how much the property can cost? Etc.

I am asking because I am in a situation now where I do not like my permanent part-time job, but am hanging onto it since it has helped us qualify for mortgages in the past. I had another opportunity come up that is work from home, but the job is contract with less pay and wouldn't be able to help me qualify for a conventional mortgage. Not sure if I should risk quitting my W2 job on the hopes that I could qualify for an unconventional mortgage. Any input is appreciated!

0Reply
18 views

Most Popular Reply

Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
5y

Exactly what Raymond said above!  I'll add that I find that these loan types typically require a greater number of discount points to be purchased in order to get to a "near conventional market rate" (i.e. what you'd get on a conventional loan for an investment property at that point in time).


So, larger down payment requirements AND larger up front capital required to buy down the interest rate.

1Reply
See this reply in the discussion

5 Replies

Jump to latestLatest
  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    5y

    @Stephanie Wells I am a licensed lender and I do know of the product. It’s considered asset based lending where if the  monthly rent covers the debt service, being the mortgage, they will lend you the money. This is generally only for investment properties and carries higher down payment requirements than a primary purchase and also slightly higher interest rates. 

    [email protected]619-456-8311
    Helm Mortgage Corp.5127 Reviews
    WebsiteView Page
    0Reply
  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    5y

    Exactly what Raymond said above!  I'll add that I find that these loan types typically require a greater number of discount points to be purchased in order to get to a "near conventional market rate" (i.e. what you'd get on a conventional loan for an investment property at that point in time).


    So, larger down payment requirements AND larger up front capital required to buy down the interest rate.

    1Reply
  • Stephanie Wells
    OP
    Member since 2020 · 25 posts · 8 votes
    5y

    Thanks, super helpful! So a down payment more than 25% (this is the conventional investment down payment amount we were quoted, which seems a little high)? Do you know roughly what percentage the down payment usually is for an asset based loan?

    0Reply
  • Allen McGlashing
    Investor · Cambridge, MA · Member since 2017 · 195 posts · 106 votes
    5y

    @Stephanie Wells

    There are programs for everything you are trying to do. Yes conventional loan requires in Most cases 25% down for an investment property. I have seen some asset based lenders or hard money lenders give 15%-20% down and it gets lower with more experience you just have to search around. Although the rates are little higher and you’ll have to pay usually 1-3 points they close extremely quicker than a traditional bank so that helps when making offers on properties.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Stephanie Wells I am not sure this terminology is correct or it could be that different people are using the same terminology to mean different things. Conventional mortgages are non-government backed loans. They fall in two categories, conforming and non conforming. Conforming loans are meet Fannie Mae and Freddie Mac standards for sale on the secondary market. Unconventional loans are government backed programs like FHA, VA and USDA loans. Usually these loans have lower credit score and down payment requirements. Some people use the term unconventional to mean private lending, hard money lending or any loan program tat doesn't have strict credit or income requirements. Using the term literally, unconventional would really be any loan that is not conventional. Using that definition, it could include a wide variety of loans so be aware when using that term it is not universal.

    There are also business loans that are based on the business, although individual guarantee may be required in some cases.

    Quitting your W2 will make lending harder and more expensive. You will pay higher upfront costs and higher interest rate, because you will not qualify for the best loan products. That doesn't mean you shouldn't quit, just be aware of the trade offs.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free