This BLOG On NON-QM Loans For Real Estate Investors Qualification Requirements Was PUBLISHED On May 6th, 2019
Gustan Cho Associates now offers NON-QM Loans For Real Estate Investors.
- Until the creation and launch of NON-QM Loans For Real Estate Investors, most investors relied on high-interest hard money loans
- Real estate investors relied on using hard money loans with interest rates higher than 15%
- Hard money loans are offered through private lenders without using traditional lenders
- There are no mortgage regulations when it comes to hard money lending on investment properties
- Hard money loans come from private individual investors or groups of investors who lend private money based on the property and not the individual credit profile
In this blog, we will discuss NON-QM Loans For Real Estate Investors and the eligibility requirements.
What Are NON-QM Versus Hard Money Loans
NON-QM Loans are non-traditional loans.
- Hard Money Loans are loans investors need quickly and need a lot of equity
- Hard money loans are normally for investment properties only
- Hard money loans are equity-based and do not require credit/income requirements of borrowers
- Most real estate investors turn to hard money loans because they do not qualify for traditional credit qualifying investment loans by traditional lenders
- NON-QM Loans are similar to hard money loans
- However, non-qm loans have substantially lower interest rates versus hard money loans
- Interest rates on non-qm loans are dependent on the down payment and borrower’s credit scores
- Gustan Cho Associates at Loan Cabin Inc. offers asset-based non-qm loans for real estate investors
There are two types of non-qm loans:
- Owner-occupant home loans for primary residences
- Investment properties
How The Mortgage Process Works
All lenders, whether traditional and/or non-traditional lenders, want to feel confident and secure that borrowers will repay their mortgage loans.
- Lenders do not want to chase after the monthly mortgage payments month after month
- They also do not want to foreclose and go after the property
- Nobody has a crystal ball and can predict the future on whether or not a borrower will default on their new mortgage
- This is the reason why lenders rely heavily on borrower’s credit scores and overall payment history
- History of past timely payment is a good indicator of future payments
- The borrower’s income is a good indicator of having the ability to repay
- The down payment shows skin in the game by borrowers
- Borrowers with high credit scores and high down payment are referred to as prime borrowers
Prime borrowers get the best mortgage rates because they are considered less risk by lenders.
Investment property loans are often asset-based lending.
- What this means is that the subject property is more important than the individual borrower’s income/credit profile
- Asset-based lenders lend based on the collateral that is securing the subject property
- If the borrower defaults on their asset-based investment property loans, they will go after the collateral and sell it to get their money back
- The equity position in the property is more important than the individual borrower’s credit/income profile
NON-QM Loans offers asset-based lending just like hard money loans.
Benefits Of NON-QM Loans For Real Estate Investors
Mortgage rates on non-qm loans are higher than traditional full doc loans but lower than hard money loans. NON-QM Loans for real estate investors offer many benefits. Michael Gracz, the National Sales Manager at Gustan Cho Associates, leads the NON-QM Lending Division at Gustan Cho Associates Mortgage Group. Here is what Mike Gracz says about the benefits of non-qm loans for real estate investors.:
One of the main benefits of non-qm loans for real estate investors is SPEED. This is because the lender is mostly focused on collateral (and less concerned with your financial position), non-qm mortgages can close way faster than traditional credit qualification loans. The mortgage underwriting process on non-qm loans is much quicker. Underwriters will just underwrite the subject property and will not go over a fine tooth comb on the borrower. Agreements on non-qm loans can also be more flexible than traditional agreements. Lenders don’t use a standardized mortgage underwriting process. Instead, they evaluate each deal individually. Depending on your situation, you may be able to tweak things like the repayment schedules. You might be borrowing from an individual who’s willing to talk – not a large corporation with strict policies. The most important factor for lenders of investment properties is collateral. If you’re buying an investment property, the lender will lend as much as the property is worth. NON-QM Loans make the most sense for short term loans. Fix-and-flip investors are a good example of hard money users: they own a property just long enough to increase the value – they don’t live there forever. They’ll sell the property and repay the loan, often within a year or so. It is possible to use hard money to get into a property and stay there, but if you want to refinance as soon as you can get a better loan.