DSCR still the best route? Maybe

[Clayton Silva]

Non-QM has come a really long way over the past couple years. I am not sure that many people realize, but almost half of all mortgages originated today are Non-QM (non-qualified mortgages). All this means is that more and more mortgages are not being sold to Fannie Mae, Freddie Mac, Ginnie Mae, and are being underwritten differently than many are used to. When people hear Non-QM they often, albeit incorrectly, associate them with subprime or just DSCR. Non-QM has really started to fill in the gaps where there is a need in traditional lending, and often they make Fannie Mae or Freddie Mac look alike loans that have better rates than conventional, AND easier underwriting. When FHA changed citizenship requirements for eligibility, many Non-QM lenders filled in and made loan programs with flexible citizenship guidelines.

I bring this up, because I have done hundreds and hundreds of DSCR loans, and for the past few years DSCR has been the investor loan of choice. However, with more and more Non-QM programs hitting the market daily, there are a lot of options that may be better than DSCR and most people have never heard of them. There are, for example, loan programs that can count your income even if you just switched from W2-1099. Or can use retirement assets to boost income without EVER TAKING a draw (and you don't even have to be retirement age). There are programs that have higher DTI limits, or ones that use bank statements, even programs that only require 1 year of tax returns or 1 W2 to qualify. The benefits of these programs are that they typically have better rates than DSCR, no pre-payment penalty (so you can capture rate drops as soon as they happen), can still close in LLCs, and often are not much heavier of an underwriting lift than a DSCR loan.

I would have to write a 1,000 page essay to cover all the really innovative new products hitting the market, but all this to say, if you are considering a DSCR loan but are concerned about locking into that rate for 2,3 or 5 years with potential rate reductions on the horizon, I would definitely ask your lender what other products or programs may be available because there is so much out there right now.