Using a No-Ratio Loan to buy a Primary Residence

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Using a No-Ratio Loan to buy a Primary Residence

Brad Roche
Lender · Davidson, NC · Member since 2023 · 23 posts · 19 votes

What is a no-ratio loan? Much like a DSCR loan for an investment property- a no ratio loan does not look at your Debt-to-income ratio (DTI). They are mainly focused on your credit score and cash reserves. This is a great loan option for non-traditional buyers who write off a lot of their income as a loss (i.e. Self-employed / Business Owners). As far as qualifying income when applying for a traditional mortgage- we can only use income that you pay taxes on.

Here are the requirements for our No-Ratio program- they may differ lender to lender but this can be used as a good base of knowledge to understand how a No-Ratio Loan works. Please talk to your lender about their No-Ratio requirements:

  • Occupancy Types:
    • Primary Residence
    • Second Homes
  • Eligible Property Types:
    • SFR, PUD, Townhouses, Condo's, Multi-Units, Modular, Rural, and Log Homes
  • Credit Score Minimum/Cash Reserve Requirements/Down Payment Requirements
    • 720+ / 24 Months Cash Reserves (PITIA*) / 20% Down
    • 680-719 / 18 Months Cash Reserves (PITIA*) / 25% Down
    • 660-679 / 12 Months Cash Reserves (PITIA*) / 35% Down

* PITIA is your monthly mortgage payment (Principle, Interest, Property Taxes, Home Insurance, and Association Fees

If Comparing No-Ratio and Conventional- you would go for Conventional 10/10 times if you can qualify. For No-Ratio Loans- the terms are not ideal but are a great alternative option for non-traditional borrowers and those who can not qualify Fannie Mae/Freddie Mac Loans.

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  • Menachem Feldman
    Member since 2023 · 2 posts · 0 votes
    2y

    Hi

    what are the typical terms on this loan?

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    Why do people with worse credit need less reserves? Setting them up to fail or showing reserves don’t matter?

    If the average home is a little over $400k I don’t see people with bad credit having $140k downpayment laying around. Even $100k for good credit buyers unlikely. 

    Tell them to fund a partner, or a seller finance deal, anything else has to be better. 

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    2y

    What are rates? You can get DSCR loans very close to conventional rates and no one is checking if you decide to make it your personal residence.

    0Reply
  • Menachem Feldman
    Member since 2023 · 2 posts · 0 votes
    2y

    And  is this in NY as well ?

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Brad Roche:

    What is a no-ratio loan? Much like a DSCR loan for an investment property- a no ratio loan does not look at your Debt-to-income ratio (DTI). They are mainly focused on your credit score and cash reserves. This is a great loan option for non-traditional buyers who write off a lot of their income as a loss (i.e. Self-employed / Business Owners). As far as qualifying income when applying for a traditional mortgage- we can only use income that you pay taxes on.

    Here are the requirements for our No-Ratio program- they may differ lender to lender but this can be used as a good base of knowledge to understand how a No-Ratio Loan works. Please talk to your lender about their No-Ratio requirements:

    • Occupancy Types:
      • Primary Residence
      • Second Homes
    • Eligible Property Types:
      • SFR, PUD, Townhouses, Condo's, Multi-Units, Modular, Rural, and Log Homes
    • Credit Score Minimum/Cash Reserve Requirements/Down Payment Requirements
      • 720+ / 24 Months Cash Reserves (PITIA*) / 20% Down
      • 680-719 / 18 Months Cash Reserves (PITIA*) / 25% Down
      • 660-679 / 12 Months Cash Reserves (PITIA*) / 35% Down

    * PITIA is your monthly mortgage payment (Principle, Interest, Property Taxes, Home Insurance, and Association Fees

    If Comparing No-Ratio and Conventional- you would go for Conventional 10/10 times if you can qualify. For No-Ratio Loans- the terms are not ideal but are a great alternative option for non-traditional borrowers and those who can not qualify Fannie Mae/Freddie Mac Loans.


     It's interesting but how do you spread the risk for investor of this fund ? Is it based on PRIME rate ? what's the spread ? 
    dont you think it's similar like subprime mortgage 2.0 ?

    0Reply
  • Brad Roche
    OP
    Lender · Davidson, NC · Member since 2023 · 23 posts · 19 votes
    2y
    Quote from @Bill B.:

    Why do people with worse credit need less reserves? Setting them up to fail or showing reserves don’t matter?

    If the average home is a little over $400k I don’t see people with bad credit having $140k downpayment laying around. Even $100k for good credit buyers unlikely. 

    Tell them to fund a partner, or a seller finance deal, anything else has to be better. 


     Hey Bill- Thank you for the comment!

    The cash reserves are lowered as the credit score goes down because the down payment increases, the monthly payment would be a lot lower putting 35% down vs. 20% Down. I agree with you that even buyers with the best of credit scores do not have 100K laying around to put down. In my business- the no-ratio loan program has been utilized for clients that have great equity in their house they are selling and want to transfer that as a down payment to their new property- hence why have the extra money to put down. 

    As stated in the post- this is best for non-traditional buyers (aka. self employed / business owners). This is not an ideal for traditional buyers- because Conventional will have better terms 10/10 times. I also agree that seller-finance can be a better alternative but at least here in NC- they are around but not as easy to find. Sense this loan is for primary residence's- many of the buyers are not interested in doing the work to find a seller finance and it doesn't make sense to add a partner for a primary residence. The No-Ratio is a good loan if you have no other options- 

    0Reply
  • Brad Roche
    OP
    Lender · Davidson, NC · Member since 2023 · 23 posts · 19 votes
    2y
    Quote from @Henry Lazerow:

    What are rates? You can get DSCR loans very close to conventional rates and no one is checking if you decide to make it your personal residence.


     Thanks for the comment, Henry!

    The no-ratio rates are similar to DSCR- heavily based on your credit score and cash reserves. DSCR also tends to have requirements like you have to have experience managing or owning a investment property for at least 1 year to qualify. As well- the DSCR rate is heavily based on the ratio. If the ratio comes back lower than expected- then the rate could be increased by 1-2% . Makes more sense to go No-Ratio and not have to worry about the projected rent coming back low.

    0Reply
  • Brad Roche
    OP
    Lender · Davidson, NC · Member since 2023 · 23 posts · 19 votes
    2y
    Quote from @Menachem Feldman:

    And  is this in NY as well ?


     Yes- this program is offered in all 50 states!

    0Reply
  • Brad Roche
    OP
    Lender · Davidson, NC · Member since 2023 · 23 posts · 19 votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Brad Roche:

    What is a no-ratio loan? Much like a DSCR loan for an investment property- a no ratio loan does not look at your Debt-to-income ratio (DTI). They are mainly focused on your credit score and cash reserves. This is a great loan option for non-traditional buyers who write off a lot of their income as a loss (i.e. Self-employed / Business Owners). As far as qualifying income when applying for a traditional mortgage- we can only use income that you pay taxes on.

    Here are the requirements for our No-Ratio program- they may differ lender to lender but this can be used as a good base of knowledge to understand how a No-Ratio Loan works. Please talk to your lender about their No-Ratio requirements:

    • Occupancy Types:
      • Primary Residence
      • Second Homes
    • Eligible Property Types:
      • SFR, PUD, Townhouses, Condo's, Multi-Units, Modular, Rural, and Log Homes
    • Credit Score Minimum/Cash Reserve Requirements/Down Payment Requirements
      • 720+ / 24 Months Cash Reserves (PITIA*) / 20% Down
      • 680-719 / 18 Months Cash Reserves (PITIA*) / 25% Down
      • 660-679 / 12 Months Cash Reserves (PITIA*) / 35% Down

    * PITIA is your monthly mortgage payment (Principle, Interest, Property Taxes, Home Insurance, and Association Fees

    If Comparing No-Ratio and Conventional- you would go for Conventional 10/10 times if you can qualify. For No-Ratio Loans- the terms are not ideal but are a great alternative option for non-traditional borrowers and those who can not qualify Fannie Mae/Freddie Mac Loans.


     It's interesting but how do you spread the risk for investor of this fund ? Is it based on PRIME rate ? what's the spread ? 
    dont you think it's similar like subprime mortgage 2.0 ?

    it is not for investors- it is a primary loan…it is based on credit scores and assets remaining after closing unlike a lot of the loans in 2008. 
    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Brad Roche:
    Quote from @Carlos Ptriawan:
    Quote from @Brad Roche:

    What is a no-ratio loan? Much like a DSCR loan for an investment property- a no ratio loan does not look at your Debt-to-income ratio (DTI). They are mainly focused on your credit score and cash reserves. This is a great loan option for non-traditional buyers who write off a lot of their income as a loss (i.e. Self-employed / Business Owners). As far as qualifying income when applying for a traditional mortgage- we can only use income that you pay taxes on.

    Here are the requirements for our No-Ratio program- they may differ lender to lender but this can be used as a good base of knowledge to understand how a No-Ratio Loan works. Please talk to your lender about their No-Ratio requirements:

    • Occupancy Types:
      • Primary Residence
      • Second Homes
    • Eligible Property Types:
      • SFR, PUD, Townhouses, Condo's, Multi-Units, Modular, Rural, and Log Homes
    • Credit Score Minimum/Cash Reserve Requirements/Down Payment Requirements
      • 720+ / 24 Months Cash Reserves (PITIA*) / 20% Down
      • 680-719 / 18 Months Cash Reserves (PITIA*) / 25% Down
      • 660-679 / 12 Months Cash Reserves (PITIA*) / 35% Down

    * PITIA is your monthly mortgage payment (Principle, Interest, Property Taxes, Home Insurance, and Association Fees

    If Comparing No-Ratio and Conventional- you would go for Conventional 10/10 times if you can qualify. For No-Ratio Loans- the terms are not ideal but are a great alternative option for non-traditional borrowers and those who can not qualify Fannie Mae/Freddie Mac Loans.


     It's interesting but how do you spread the risk for investor of this fund ? Is it based on PRIME rate ? what's the spread ? 
    dont you think it's similar like subprime mortgage 2.0 ?

    it is not for investors- it is a primary loan…it is based on credit scores and assets remaining after closing unlike a lot of the loans in 2008. 

     I will DM you

    0Reply
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