All Forum Posts by: Stacy Raskin

Mortgages are mainly divided between qualified mortgages and non-qualified mortgages. 

Non-QM loans are mortgages that don’t meet the Consumer Financial Protection Bureau’s (CFPB) requirements to be considered qualified mortgages. A qualified mortgage meets the CFPB’s “ability to repay” rule, which requires that lenders vet your finances and set terms on the loan that you’re likely to be able to pay back.

A qualified mortgage is a mortgage that meets certain requirements for lender protection and secondary market trading under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act is financial reform legislation passed in 2010 in order to protect consumers from the unfair and deceptive practices and products that led to the 2008 crisis.

Qualified mortgages are underwritten to Fannie Mae and Freddie Mac standards. Qualified mortgages must meet certain standards set forth by the Dodd Frank act such as no risky loan features such as balloon payments, debt to income (DTI) can't exceed 43%, no excessive upfront costs and fees and no loan terms longer than 30 years.

Many loans are sold to the government-sponsored enterprises Fannie Mae and Freddie Mac or other aggregators, which can repackage the loans as mortgage-backed securities, or MBS, or hold them on their own books and collect the interest from borrowers.

Non-qualified mortgages are written by lenders who may use part of Fannie Mae and Freddie Mac underwriting standards but they have their own underwriting standards which is why some non-qualified lenders will write loans for self employed people who have less than 2 years of self employment. They don't need to follow Fannie Mae Selling Guidelines or Freddie Mac guidelines as they are not selling to them in the secondary market. These non-qualified mortgage lenders can then sell their loans to investors other than Fannie Mae and Freddie Mac and other GSEs.

A government-sponsored enterprise (GSE) is a quasi-governmental entity established to enhance the flow of credit to specific sectors of the U.S. economy. GSEs do not lend money to the public directly; instead, they guarantee third-party loans and purchase loans in the secondary market, ensuring liquidity. The lenders can sell their loans on the secondary market to the GSEs and other investors and free up more cash to make more loans. 

Non-qualified mortgages give borrowers additional lending options. People who can benefit are self-employed people, business owners, real estate investors and those who don't have the credit or income documentation to qualify for qualified mortgages. Non-qualified mortgages allow for higher levels of debt to income and more flexible documentation of income. They can be a great way for people to build their net worth. 

@Stevenson Alexis, if you are cash flowing and you have zero debt on the property, then the rate sounds high. Really your DSCR rate will be determined by a couple main factors:

1. Credit score- the higher the best. 760+ gets best pricing for investment property loans with most lenders 

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below: 

DSCR < 1

Principal + Interest = $1,700

Taxes = $350

Insurance = $100

Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250

Insurance = $100

Association Dues = $25

Total PITIA = $1875

Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

@Dustin Sanders, what state do you live in? All primary residence loans will require some type of income verification. That doesn't mean you need to have a traditional job. There are loans that use bank statement deposits or if you have a large amount of assets, an asset depletion loan. 

@Morgan Stelly, what state are you looking to buy in? 

Bank statement loans and 1099 loans can be for one year. 

Also, DSCR loans don't look at owner income at all.

One of the main things to consider with these loans is are you going to live in the property or not? If not, DSCR can be the way to go.

If you're going to live there, then bank statements loans or 1099 would be a better fit. 

Also, to consider is do you have cash reserves as most DSCR loans will require some kind of cash reserves.

@Cody Wageman, many lenders will close in an LLC and have the LLC entity on title if it's a rental property as that's a different category of loans that are largely categorized under the term "business purpose." DSCR loans or loans that qualify based on the current or projected rental income or in this category.

@Chris Morris, I'm a mortgage broker that shops your loan to multiple lenders that does HELCOs with investment or residential properties. A newer product is a fixed rate 2nd mortgage that some clients have found helpful since it's a fixed rate and you get to keep your lower first rate mortgage.

@Jorge Pimienta, where is the property located?

@Neil Smith, where is the property located?

@Cody Wageman, are you planning to live in the unit or rent it out completely? Also, how much are you looking to put down as a downpayment? 

@Eamon Keating, Ultimately lenders have to be transparent on the Loan Estimate so I would look to get that document to compare. Mortgage brokers save home buyers on average over $9K compared to retail lenders and banks. 

What stare are you looking to buy in?