For those who are capped and constrained by all of the Conventional Fannie Mae/Freddie Mac rules on investment real estate lending, you should give the Non-QM (Non-Qualified Mortgage) world a try. I've detailed below both the advantages and disadvantages of Non-QM loans/lenders. Please let me know if you have any questions, I'd be happy to follow-up!
WHAT ARE NON-QM (NON-QUALIFIED MORTGAGE Lenders/Loans?
Non-QM (non-Qualified Mortgage) lenders are non-bank depository lenders. They are corporations that are NOT regulated by traditional Fannie Mae/Freddie Mac guidelines. They are focused on business real estate investors whose needs have outgrown the Conventional lending market. In the Non-QM world, we do NOT calculate personal DTI (Debt Ratio) or look at personal taxes, or even look at personal income. You can be unemployed with no W-2 income and not filed taxes and still qualify for a Non-QM loan!!
Non-QM lenders are asset based while Conventional lenders are credit based.
Non-QM lenders focused solely on the following criteria when green lighting your deal:
1-The ability of the property to cash-flow in terms of covering its underlining debt; or its ability ti appraise with ARV that covers the debt if you are flipping.
2-The credit of the borrower (660 or higher, preferably above 700)
3- Your liquidity (do you have 3-6 months of liquid assets) after you close on the property.
8 ADVANTAGES of NON-QM Loans/Lenders
1-Can make loans to legal entities (i.e. LLC, Corp etc.), Family Trusts etc.
2-Can consolidate various mortgages into ONE portfolio loan
3- No mortgage Insurance
4-Will loan on BOTH Commercial Residential (5+ units) and Commercial Business (retail, office, warehouse etc)
5-Loan Amounts range from $45K minimum (residential) to maximum $5M (Commercial).
6-Do NOT need a job, income to apply.
7-No limit on the number of mortgages you can have
8-In some instances can cross collateralize property
4 DISADVANTAGES of NON-QM Loans/Lenders
1- 20% down payment
2-Typically 2 pts lender fees or more
3- Slightly higher interest rate if your credit is below 700 or the the property DSCR (debt service coverage ratio) is below 1.3.
4- Show 3-6 months liquidity left over after you close on the property