All Forum Posts by: Daniel Hennek

There is nothing about a Non-QM loan that allows a lender to violate the LO Compensation Rule or do things any differently with regards to margin and LO comp and that seems to be what you're suggesting.  While some Non-QM lenders might allow pricing adjustments for repeat borrowers the MLO must still be paid in accordance with the LO Comp Rule and those pricing tweaks are often times applicable to agency clients as well.  Margins are set up with Non-QM lenders exactly the same way as they are for all other lenders and LO Comp rules must be followed to be in full compliance.

Some lenders interpret the LO Comp Rule differently with regards to the type of comp, and will allow different margins to be charged on Lender paid vs borrower paid comp.  I think that's exposure I don't want for my company because it opens the door to discrimination, but it's nothing to do with the actual product type and only regarding lender paid broker compensation vs borrower paid broker compensation.

To clear up some incorrect information...

Non-QM is certainly not DSCR only. Non-QM encompasses a whole lot more than DSCR loans...Non-QM stands for Non Qualified Mortgage, meaning that it doesn't meet the requirements to be deemed a Qualified Mortgage which is outlined in a regulation called The Ability To Repay/Qualified Mortgage Rule. There are many things that make a mortgage a Qualified Mortgage but conventional, FHA, VA, and USDA cannot be anything other than a Qualified Mortgage. If the mortgage doesn't meet the requirements for being a Qualified Mortgage then it cannot be any of those agency loans I mentioned above. You can find out all sorts of info on QM's and what makes a Non-QM on the CFPB's website. Look up "The Ability To Repay/Qualified Mortgage Rule". Bottom line is that Non-QM is all sorts of loan programs, and technically they are just mortgages that CANNOT be a Qualified Mortgage.

Many, perhaps most, Non-QM products DO have DTI limits...There are full doc programs, bank statement programs, reduced doc programs, interest only, and all sorts of other things that can only be a non-QM. DSCR is only one type of Non-QM.

Conventional loans are more times than not, underwritten faster than Non-QM. Furthermore, many Non-QM programs are way more of a pain in the arse than conventional. Underwriting times are highly dependent upon the actual lender underwriting the file and point person/MLO/ processor that you're working with. I've got one lender that consistently gives same day decisions for conventional/FHA/VA/USDA and I can close refinances with no appraisal in roughly 10 calendar days. Then look at one of my lenders that does both conventional and Non-QM; their non-QM products have 4-5 day business day turn times while conventional is 2-3 business days. Generally, Non-QM is a pain the butt and only used for people who don't qualify for a better loan.

I also have to disagree with the assessment that "most" investors go with Non-QM because it means less headaches. Generally they do it because they can't qualify for a loan with more favorable terms, and the DSCR loan or other Non-QM product is their only/cheapest current path to ownership because it's not a hard money loan. If someone can save 2% or more on the rate with conventional you're suggesting they'd pay that extra 2% on the large sum of money they are borrowing so they can avoid uploading a few extra PDFs? My clients won't get that kind of advice...

The flexible nature of the HELOC is something you will pay for. Some people can justify paying for the flexibility while others can't. It's very situational. Do your math and see what it could cost you and then make a decision. A lot of questions on this forum come down to the math. What does the math tell you? Due to the variable nature of a HELOC you have to make some guesses, and that is one thing many people don't like about them. You're always managing a HELOC, a 1st mortgage is done and over with. Balancing all the numbers and doing the math can be a bit daunting for some people but the math is a fundamental component of investing in anything and without knowing it people just stumble around blind.

Ultimately you have to decide what is more important to you. Being able to draw up, pay down, and use the HELOC again? Or setting it and forgetting it with a low interest rate you know is a certainty?

 My pleasure!  Always happy to help people who are out there trying to help themselves.

Probably.  More down, but the rate will have you cash flow better.  Perhaps propel you to the next property sooner.  If I were to adjust my numbers and use investment property rates from Angel Oak with 15% down the 2 property scenario would look significantly worse than the single property conventional loan scenario.

If you're not already, I suggest getting good at using a spreadsheet.  You can google appreciation and amortization formulas to help you fill it in.  There is no replacement for actually knowing the math yourself.  

We only use Non-QM when we have to.  If we can offer better terms under a different program it's a broker's fiduciary duty to do so.  And why would anyone take a loan with less favorable terms...  Non-QM is only for when people don't qualify for better loans.

On any application you declare the occupancy type.  Primary means you're living it.  Secondary means you use it as a home you occupy part of the year and it's not a rental.  Investment is a rental property.  Primary and Secondary are both considered owner occupancy and therefore get more favorable terms.  Rates for owner occupancy are at least half a point better, and sometimes on certain scenarios can be up to a whole point different than what would be offered on an investment property.  That is why people try and fudge things to call an investment property a second home and get the significantly better rate, but don't be fooled by the word fudge because what we are talking about is occupancy fraud which is a type of mortgage fraud and is not something you want to play with for a better rate.

The down payment of only 10% is also an indicator this is being quoted as a "second home". Make sure you get LTV and rate quoted based an investment property occupancy if it's a rental. If it's a rental its NEVER a second home.

I'm a broker as well. The only non-QM lender I know of doing less than 20% down on an investment property is Angel Oak. They'll do 15% down on one of their products, but I know of nothing else in the market and rates are ALWAYS higher if your LTV is higher. That is your tradeoff, the rate.

So, you really just need to do your math.  Do some projections.  Bust out your spreadsheet and start throwing numbers in there.  I just threw some numbers around my spreadsheet and here's what I came up with.

If you've got 40k down that could be 25% on a $160,000 property or 2 10% down payments on $200,000 properties.  I used $800 for rent on the single property and $1000 for rent on the others.  Not sure what rent is in your area but I'm just trying to be conservative.  I also used 80% of the 200k property maintenance I estimated for the 160k property.  So, I tried to balance the fact that a 200k property will rent for more and cost more to maintain.

The summary is that in 5 years your bottom line will look about the same.  Adding up payments, rental income, expenses, interest, appreciation, balance owed, and estimated equity, you're turning your 40k into 70-75k in 5 years with either scenario.  The big benefit comes in years 5-10 by owning 2 more expensive properties vs one.  Appreciation and amortization start to work more in your favor as the years go on because you've paid down the mortgage a little and you have 2 higher value assets appreciating.  By the 10 year mark the 2 property scenario is about 20k better on your bottom line.  This is all based on a 30 year conventional at 3.125% at $120,000 vs 2 loans of $180,000 at 5%.

Now, can you actually find investment property loans with 10% down and a 5% rate?  I think not.  I don't like to make assumptions about what is going on between two people, but there are a lot of MLOs and borrowers out there that try and fudge an application and call an investment property a second home.  10% down and 5% rate are lined up with Non-QM second home terms, not investment property terms.  I highly doubt you are being quoted an actual investment property so if I were you I would treat that as a red flag to investigate and be clear about.  As Chris mentioned if that product exists it's a unicorn and everyone would want it.  That means we'd have heard about it, most likely.  So it would be a good idea to question your broker about it and make sure you'll be checking the "investment" box for occupancy.  There is a bad habit of MLOs to either be ignorant of guidelines, or to try and say something is what it isn't if that means they can offer better terms and therefore increase their chance of closing a loan. 

Robin,

You got really defensive when no offense was intended; I promise you that my intentions are always good when I take the time to write out 5-6 paragraphs.  I'll assume you didn't mean to insult me and certain things you said were just a product of emotions bubbled over, and my intentions in this response are also good.  I'm trying to help you see the picture.  Here's my tough love so I'll ask you to read this with an open mind.

The wholesale lending channel includes all types of loans. That means, commercial, conventional, FHA/VA/USDA, private money, bank portfolio, whatever you want to call it, a Broker can do it. So to be clear, I can broker "private" money. Unlike you I have a crystal clear picture of where exactly "private money" fits into the overall mortgage market. Yes I'm blunt, but do you want kid gloves or do you want the cold hard facts? This is a place where people come to talk seriously and that's how I approach the conversations most of the time.

It's very difficult to make good money brokering private money to the small market that consumes it.  It would be much easier to start as a residential MLO because everyone you talk to is a potential client; the market is so much larger that finding clients when you're new and know nothing is actually something that can happen regularly.  With a background as a paralegal you might make a great MLO with good attention to detail and document handling skills.

Trying to make a living doing only loans that can be done without a license to only companies that will allow it with this certification means you have an extremely small part of the market to work.  People will get any type of loan that is best for them so anyone that can get another type of loan isn't going private.  So if you do this Certified PMB thing your clients will also be talking to licensed MLOs who can offer them different types of loans with lower rates and you'll waste a lot of time and effort.  

I said the things I said because people have been trying to sell me certifications for 17 years.  Most of them are not worth the paper they are printed on.  There are all kinds of certifications and all they mean is you sat in a class or in front of a screen for so many hours.  They don't equal repetitions/closings and closings are all that matter when it comes to the knowledge needed to do the job.  Do you think clients would value someone with a certification who just cut their teeth on their first closing over someone who has thousands of repetitions?  Myself and other executives recruiting MLOs don't even care about certifications, we want MLO's that know what they are doing and have the repetitions under their belts.  As I said before, certifications are not repetitions.

However you take this I do wish you well and encourage you to continue engaging here on Bigger Pockets as you can find many valuable conversations.

Guess you know everything so it's interesting why you're posting here.  Good luck!

I am a licensed mortgage broker.  I own my company 100% and have been working in real estate since 2003.  I wouldn't even talk to some jokers that wanted me to take some paid certification class before I could lend their money.  Lenders give me free training if they have complicated products.  Tons of free training in the wholesale world because they all want me to lend their money vs someone else's.  They are competing to get my business and anyone asking me to pay for it just isn't paying attention to the industry or their target audience is someone else, likely people with zero experience.

"Certified Private Money Broker" is just a term they came up with for someone who took their class.  It's not recognized by any state or federal authority.  Be sure to check license laws in your state to protect yourself and don't do things that require a license, unless you get an actual MLO license through the NMLS and work for a state licensed brokerage.  Be careful not to do any type of "advertising" that would imply you are a licensed broker.  Anything where you mention that you're a broker, make sure to mention you ARE NOT licensed.  A "certification" from some private entity is not a license to be a mortgage broker.  Be very sure you are only engaging in activity that is legally allowed by an unlicensed person.

There are a ton of different real estate classes out there trying to take your hard earned money in exchange for their "education".  You likely got bombarded by "opportunities" and training because you showed yourself to be someone who would pay for it based on your "certified private broker" thing.  Those people who took your money and gave you that "certification" sold your contact information to all their affiliates and other companies to market their crap to you.  It's not the universe telling you something, it's just how they operate to sell more stuff.  

If it was that easy to get rich then why are the people "teaching" you in instead of out there making millions?  Because it's not nearly as easy as they make it out to be.  They make more money "teaching"/upselling you and getting you to "invest" with some large buy in, or buy some $4,000 piece of crap software system that they've billed as your ticket to financial freedom but wouldn't be worth it if it were free.

The best advice I can give is to find a mentor.  Not someone you pay to tell you stuff, someone you work for and who is personally invested in your success and makes money when you do.  Find someone who has experience and knowledge because you're going to get lost constantly if you don't have someone to lean on.  If you want to go fast go alone, if you want to go far go together.  Going fast might be a fast way to more financial struggles.  Be honest with yourself about the fact that you know next to nothing about brokering loans, and your chance of success alone is somewhere right around zero.  The turnover in the mortgage industry is ridiculous and it's that way for many reasons, originating mortgage loans is not an easy business.

Be very careful out there on your own.  It's a minefield full of people with veiled intentions that are good at making others feel like they're trying to help and you've already fallen victim to them once.

How much did you spend on the certification?