Non-Qualified Mortgage Loans might be the type of loan you are looking for if:
- You had difficulty qualifying for traditional loans because of your source of income
- Your loan application declined because you have a low credit score
- You want to invest in a non-owner-occupied property but a traditional lender rejected you
- You’re an ITIN holder who doesn’t have a US Proof of Income
Also known as non-QM Loans, many real estate investors use these loans to finance their Fix-and-flip or rental property projects. Non-QM loans are typically provided by private money lenders and can accommodate investors whose businesses do not follow traditional business models, such as freelancers, professionals, and self-employed individuals. Read on to learn why non-QM loans are the answer for real estate investors dealing with non-owner-occupied properties.
A Non-QM Loan Key Characteristics
Below are the prime characteristics of non-QM loans that help real estate investors acquire Non-Owner Occupied Properties. Investors with non-conventional sources of income and no traditional proof of income will find these advantageous to their business.
1. Flexibility in Qualification Requirements
When you apply for project financing from traditional lenders, you may have struggled with the many conventional proofs of income and other documents required by your bank. Freelancers, Fix-and-Flippers, or rental property investors do not have the traditional proof of income like W-2s or pay slips banks want. To accommodate them, non-QM lenders accept alternative documents for income verification. Bank statements, proofs of rental income, or 1099 forms are examples of these documents to determine a borrower’s cash flow. Having a solid exit strategy for your investment property will be helpful in creating a compelling loan application.
Because Non-QM loans do not adhere to the policies and regulations set by the Consumer Financial Protection Bureau, they are more flexible in qualifying loan applications.
2. Accommodates Diverse Property Types
Traditional banking institutions usually accept only properties that are owner-occupied. They do not cater to investment properties, thus limiting the financing opportunities available to you as a real estate investor. Fortunately, alternative financing solutions are available, such as non-QM loans. These loan types accept non-owner-occupied properties, including single-family homes, multi-family properties, condos, and commercial real estate. This flexibility makes these loans ideal funding sources for many property investors.
3. Interest-Only and Adjustable-Rate Payment Options
Non-QM loan rates are usually up to 5% higher than traditional bank rates. The reason is that lenders offering non-QM loans absorb more risks than commercial lenders. There are two options for repaying your mortgage with non-QM loans. The first option is interest-only payments. In this option, you will only pay for your loan’s monthly interest and do not have to make any payments on your principal. However, you have to settle the whole principal balance upon loan maturity. For fix-and-flip project investors, interest-only schemes allow you to minimize your monthly loan payments. With significantly lower monthly payments, an interest-only payment scheme frees more funds for your project’s completion. On the other hand, if you opt for the adjustable-rate scheme or payment structure, your interest rate adjusts depending on the prevailing market conditions; thus, your payments will not be as predictable as fixed monthly payments.
4. Favorable LTV Ratios, Higher Loan Amounts
If you are short on funds or want to minimize the exposure of your funds to a project, non-QM loans are the answer. Many non-QM lenders allow loans of up to 75% of a project’s After-Repair-Value or ARV, so long as your cash flow allows it. A higher loan amount is a financial advantage and particularly useful for an investor if the projects involve purchasing high-value real estate properties or multiple investment properties. A higher LTV ratio thus gives you more funds for your project.
5. Credit Score Flexibility, High DSCR Tolerance
Non-QM loans accommodate a broad range of real estate investors who suffer from less-than-stellar credit ratings. However, a higher equity requirement becomes a condition of the loan. For example, if you have a Credit Score equal to 620, you only available of a 60% Loan-To-Value (LTV) ratio. Thus, you will need funds to cover the 40% equity. GL&L Holdings will lend as much as 75% LTV if you have a decent credit score and a bit of experience doing some fix & flips.
Non-QM lenders are also more accommodating of borrowers with a high Debt Service Coverage Ratio or DSCR of more than 50 percent. They are more lenient than traditional lenders that usually set a DCSR limit of 40 percent. The downside of a high DSCR is that you will have to prepare for a higher equity on your project.
6. Quick Release of Funding
Most real estate investors rely on the quick release of funds in closing their deals and starting their projects. Private Money Lenders offering non-QM Loans are a lifeline for investors specializing in Fix-And-Flip and rental properties. Quick funding is one of the reasons many investors prefer Private Money Non-QM loans because they can avail of project funds in as short as seven banking days. In traditional lending institutions, on the other hand, you have to wait for at least 30 days just to get approved.
GL&L Holdings can close loans between 10-15 business days as long as there are no issues with the property title.
Non-QM Loans Are The Answer To An Investor’s Call
Non-QM loans provide an alternative to the quick funding problems of real estate investors. Fix-and-flip and rental property investors can benefit in quick release of funds, smooth loan processing, and lighter documentary requirements to help them secure a deal. Flexibility, personalized service, and customized loan packages tailored to the needs of the borrower-investor are some of the advantages of non-QM loans. In addition, non-QM private money lenders also accept almost any type of investment property and so does GL&L Holdings.
If you are a real estate investor looking for alternative financing options, non-QM private money loans can accommodate your deal. Sometimes, they can even customize the loan package to your needs. If restrictive requirements wear you out, consider exploring non-QM loans for funding your real estate projects. Call us now at 832-770-9415 or email us at info@gllholdings.com.
