Non-QM Lending Pro's and Con's

7 Replies

Hello All,

As I learn more about Non-QM and the Investor options available from these lenders my curiosity increases for a few reasons. Other forums on here (that I've seen) have not been positive. It seems like a good option and some of the companies that offer it have additional "investor" focused programs (Bank statement and cash flow based mortgage and jumbo loans, solid cash out refi programs). If you have experience with Non-QM, what was the downside/turn-off and what are the advantages? What other methods do you prefer? Any and all info appreciated! 

@Miles Fulton

I am mortgage broker who works almost exclusively with Non-QM.  Let me tell you it can be a roller coaster!

There are many factors to consider and directly effect your experience with a Non-QM loan.  

1. Your Broker or Loan Officer - Huge impact.  If you find one of these who looks to throw applications to lenders to see how many stick, you are in for a bad experience.  If you find one that takes the time to give you the attention you deserve, you will have a much better experience!  The person you work with needs to know your situation, ask questions, and answer yours.  Great LOs are teachers, not just number crunchers trying to feed a machine.  

2. Your Lender - if using a broker, you may not have much control over this. If you are shopping lenders, they need to specialize in Non-Qm, not just offer it because. DSCR, for example, is quickly becoming a very popular loan option for investors. Like most things in a free-enterprise market, what happens? The other guys want more market share and think they can add those loans to their portfolio too... and give it little to no attention. Horrible experiences... I am willing to try any lender once or twice. That's it. I have my go to's and they are experts at Non-QM. They don't even do Conventional or Agency unless they are forced to... Lol...

3. Your Knowledge and Education (Expectations) - Do you research and dig deep.  Every scenario has its ins and outs.  If you educate yourself well enough to know what to expect, you become a much easier investor to work with and the Broker or LO will become more engaged with you.  You may even form a long term business relationship.  I only say this, not trying to contradict above, as some brokers/LOs are more than willing to teach but we all have our limits.  Even newer broker/LOs will respect you more if you can demonstrate that you understand the process and are willing to LISTEN to their guidance.  If you feel like the Broker/LO doesn't know what they are talking about and you aren't sure either, then you both should probably part ways...

4. Your Realtor - I can't emphasize this enough. If you are using a wholesaler or finding your own deals, please please please make sure you find a Realtor who is FAMILIAR with Non-QM. These loans do not usually close in less than 20 days. I have a lender who closes regularly on DSCR in 25 days or less. 20 is a stretch. To be safe, always plan on 30-35 as appraisals are still a challenge in most of the country right now. If you have an upity Realtor who wants to rush things and close quickly, take a step back and think about that relationship. You may not see it, but that type of Realtor is going to hound your Broker/LO or processor. There is little we can do to speed these loans up. They simply take more time. To compare, if you have a broker/LO who is telling you 45 days to close, find a different one. They are having internal issues or are backed up. Aside from Appraisals, these loans do NOT take that long to close.

Lots of info and now my fingers  hurt from typing... Lol...

Cheers!

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@Ned Carey

Non-QM are non-qualified mortgages. Typically, they are loans that act like residential loans but cater to individuals and businesses who are purchasing or refinancing residential properties. DSCR, Asset Depletion, and Bank Statement/1099 loans are the most common loan types. These loans are NOT backed by fannie/freddie although most lenders will follow the guides to an extent. They are more flexible for folks who are self-employed, have high net worth, or are investors.

Cheers!

Originally posted by @Nick Belsky :

@Miles Fulton

I am mortgage broker who works almost exclusively with Non-QM.  Let me tell you it can be a roller coaster!

There are many factors to consider and directly effect your experience with a Non-QM loan.  

1. Your Broker or Loan Officer - Huge impact.  If you find one of these who looks to throw applications to lenders to see how many stick, you are in for a bad experience.  If you find one that takes the time to give you the attention you deserve, you will have a much better experience!  The person you work with needs to know your situation, ask questions, and answer yours.  Great LOs are teachers, not just number crunchers trying to feed a machine.  

2. Your Lender - if using a broker, you may not have much control over this. If you are shopping lenders, they need to specialize in Non-Qm, not just offer it because. DSCR, for example, is quickly becoming a very popular loan option for investors. Like most things in a free-enterprise market, what happens? The other guys want more market share and think they can add those loans to their portfolio too... and give it little to no attention. Horrible experiences... I am willing to try any lender once or twice. That's it. I have my go to's and they are experts at Non-QM. They don't even do Conventional or Agency unless they are forced to... Lol...

3. Your Knowledge and Education (Expectations) - Do you research and dig deep.  Every scenario has its ins and outs.  If you educate yourself well enough to know what to expect, you become a much easier investor to work with and the Broker or LO will become more engaged with you.  You may even form a long term business relationship.  I only say this, not trying to contradict above, as some brokers/LOs are more than willing to teach but we all have our limits.  Even newer broker/LOs will respect you more if you can demonstrate that you understand the process and are willing to LISTEN to their guidance.  If you feel like the Broker/LO doesn't know what they are talking about and you aren't sure either, then you both should probably part ways...

4. Your Realtor - I can't emphasize this enough. If you are using a wholesaler or finding your own deals, please please please make sure you find a Realtor who is FAMILIAR with Non-QM. These loans do not usually close in less than 20 days. I have a lender who closes regularly on DSCR in 25 days or less. 20 is a stretch. To be safe, always plan on 30-35 as appraisals are still a challenge in most of the country right now. If you have an upity Realtor who wants to rush things and close quickly, take a step back and think about that relationship. You may not see it, but that type of Realtor is going to hound your Broker/LO or processor. There is little we can do to speed these loans up. They simply take more time. To compare, if you have a broker/LO who is telling you 45 days to close, find a different one. They are having internal issues or are backed up. Aside from Appraisals, these loans do NOT take that long to close.

Lots of info and now my fingers  hurt from typing... Lol...

Cheers!

Was going to write a post, but Nick stated it much more eloquently than I could. Read his post, then read it again.

@Nick Belsky do Non QM loans count against the conventional 10 loan limit? My wife and I just hit the limit yesterday on our last last long term property and are looking for the next best loan options to continue investing. We are looking to move into STR for the next few houses.

Originally posted by @Sean Todd :

@Nick Belsky do Non QM loans count against the conventional 10 loan limit? My wife and I just hit the limit yesterday on our last last long term property and are looking for the next best loan options to continue investing. We are looking to move into STR for the next few houses.

If you are a personal guarantor on the loan, the property counts as a "financed" property for conventional, but if you're at 10 conventional loans, it's time to go to non-qm or DSCR lending. They don't care about how many properties are financed.

None-qm lenders don't require income docs like W2, taxes, etc. They also don't report the mortgage on your credit and can lend to LLC's with 30-year fixed terms.

These are the main differences between them and banks.