If you are purchasing/refinancing a primary residence, have perfect credit, are a W2 employee, have a 2 year+ work history, are a US Citizen, and have minimal monthly debts – this article is NOT for you!
If you are self-employed, with less than perfect credit, you have only owned your business for 15 months, you are a VISA holder, and you have substantial monthly debts, then you have come to the right place!
Non-traditional or Non-Qualified Mortgage loans are one of our specialties as a NJ Mortgage Broker. You will not find these loan programs at banks, credit unions, or most mortgage lenders.
The purpose of these programs is to help ALL residents of the United States enjoy the financially transformational benefits of homeownership.
These programs are also an excellent way to acquire investment properties, especially for first-time investors.
Who are well-suited for non-traditional loans?
· Self-Employed with less than 2 years’ income history.
· Contractors receiving 1099’s.
· Restaurant servers, hair stylists, landscapers, construction workers, nail technicians, and others that are paid in cash AND/OR paid under the table (no income documentation).
· Borrowers with minimal taxable income (due to aggressive tax write-offs).
· Borrowers with significant income increases from one year to the .next (example: income increased from $10,000 in Year 1 to $200,000 in Year 2)
· Borrowers employed by family members and paid-in-kind (meaning, you don’t get cash, but your family member pays for your rent, food, car payment, etc).
· Buyers that are presently unemployed, on disability leave, or are in between jobs or contracts.
· Borrowers that supplement their income with side hustles or gig employment opportunities.
· Buyers that are retired.
· Borrowers with deposits that cannot be sourced.
· Buyers with gifts for down payments for investment properties.
· Clients that are paid through Zelle, Paypal, Stripe, or other electronic methods.
· Borrowers with foreign accounts that are not translated to English.
· Clients with enough cash-on-hand or balances in investment accounts to purchase a property cash, but would prefer not to sell their investments.
· Borrowers with recent bankruptices, short sales, foreclosures, or deed-in-lieu of foreclosure.
· Clients with a debt-to-income ratio that exceeds 55%.
· Buyers with large student loans, personal loans, credit card debts, charge-offs, or co-signed debt.
· Buyers with multiple car loans (some of which may be classified as business vehicles but appear on their personal credit report).
· Investors with multiple properties showing negative rental income or rental losses.
· Self-employed owners with Net-Operating Losses from current or prior years.
· Clients that write-off significant amount of depreciation to minimize their taxable income.
· Investment properties where the mortgage payment will exceed the rental income.
· Permanent Residents.
· Expired and non-expired VISA Holders.
· Individual Taxpayer Identification Number (ITIN) buyers (those without an SSN).
· Foreign Nationals (non-US citizen, non-visa holder, and a citizen of another country).
Now that we have answered the ‘Who’, the next topic is ‘What’.
Non-traditional mortgages allow more underwriting flexibility regarding income analysis, debt calculation, and identification requirements. As a mortgage broker near me, Brightwire Loans offers a wide range of non-traditional loan programs. For example, we can offer a loan that meets all conventional guidelines (income, assets, debts, credit, etc.), except that the client doesn’t have a Social Security Number. Alternatively, as one of the Best NJ Mortgage Brokers, we could offer loan to an unemployed client who cannot prove that they will be returning to work in the near future (a loan that would never be close to meeting conventional guidelines).
The last topic is one that is especially important to me – ‘Why’.
Oftentimes, we have clients that will qualify for both conventional loans and non-traditional loans and they seek our counsel on ‘which type of loan is best for me’.
Some of the critical topics to consider when evaluating your options will be:
· Interest Rate
· Monthly Payment
· Prepayment penalty
· Fixed vs Adjustable Rate
· Total closing costs
· Points and Fees
· Closing timeline (non-traditional loans typically close faster)
· Property condition (non-traditional loans may be more forgiving for properties in poor condition)
· Market environment (are rates expected to increase or decrease in the future)
· Hold time (how long will you hold the property before selling)
· Income Tax Implications (will the extra income taxes you pay to qualify justify the reduced rate for a conventional loan)
· Expectation of future property value appreciation
We often recommend that clients secure a non-traditional loan to acquire a property that they otherwise could not acquire with a traditional loan. There are many reasons why using non-traditional loans for a purchase to acquire a new home are the best choice:
o Choosing the best school district for your family
o Commuting distance
o Future home value appreciation expectation
o Negotiating a better price due to a faster closing
o Being able to qualify for a discounted property that is being sold as a short sale or foreclosure (that has a higher list price than what you could pursue as a conventional loan)
· Down Payment
o By choosing a non-traditional loan with a lower down payment you have more options of homes to choose from.
o By lowering your down payment, you have funds remaining for required or optional property renovations.
· Property Condition
o By choosing a non-traditional loan, you are able to qualify to purchase a property in disrepair, with an opportunity to make renovations and build equity.
o Alternatively, perhaps you can now qualify for a property that is in immaculate turn-key condition and you don’t have to take time away from work to make property repairs.
After the property acquisition is completed, our NJ loan officers encourage clients to build a plan to refinance their loan into a conventional product to help reduce their monthly payment. Most clients refinance out of a non-traditional mortgage in 12 – 24 months, and the extra cost of the non-traditional mortgage over the first two years was $5,000 - $20,000 depending on the purchase price and down payment (extra cost is calculated as interest from the higher rate and extra upfront fees at closing to secure the loan).