File taxes or go Non QM?

Today, I’m sharing insights from a recent client interaction highlighting the challenges of qualifying for a traditional mortgage and why Non-QM (Non-Qualified Mortgage) loans, like bank statement loans, are becoming increasingly popular. Let’s dive into the case and explore how these loans can offer a faster, more flexible solution for buyers.

Yesterday, a past client reached out, eager to buy a $1.7 million home. He plans to put 20% down, leveraging the $450,000 net proceeds from selling his current house - a down payment of $340,000. This leaves him needing a $1.36 million loan. His 2023 tax return showed only $84,000 in income despite owning three thriving retail stores where significant cash flows aren’t fully reflected on his taxes due to the nature of his business operations.

To qualify for a $1.36 million conventional loan, he must demonstrate around $300,000 in annual income and average that for two years. If we bring the loan amount down to $1,209 million, then we can get away with using just one year of tax returns! We discussed the implications of showing $300,000 (for one year) in income could trigger an IRS bill exceeding $100,000, starkly contrasting his usual tax burden of under $10,000. Given the recent submission, if he files taxes now to reflect this income, we’d need to verify those filings and ensure federal and state taxes are paid. This approach would also decrease his monthly payment by about $150 compared to the bank statement option, leading to a break-even point of 600 months (50 years) - a timeline he laughed off as we shifted to more pressing topics like payment structures and business strategies.

This scenario is precisely why more clients turn to Non-QM loans, such as bank statement loans. Unlike traditional mortgages that rely heavily on tax returns and W-2 income, a bank statement loan allows us to qualify buyers based on their actual cash flow, as shown through bank statements. This is a perfect fit for a business owner like my client, who has significant income but is not fully reported on taxes.

Here’s why Non-QM loans are gaining traction:

• Flexible Income Verification: We can use 12-24 months of bank statements to calculate income, capturing the true financial health of a business owner without relying solely on tax returns.
• Easier Reserve Requirements: Non-QM loans often have less stringent reserve requirements, meaning you don’t need to hold as much cash in savings after closing.
• Fast Underwriting: The underwriting process is simpler and quicker than ever before. We can now close some of these loans in 15 days or less, a significant improvement over traditional timelines.

My client’s bank statement loan would allow him to qualify for the $1.340 million loan without using his taxes and a hefty IRS bill.

The rise of Non-QM loans reflects a broader shift in the lending industry, catering to self-employed individuals, business owners, and others with non-traditional income streams. These loans provide the flexibility to pursue your dream home - like a $1.7 million property - without the constraints of conventional lending. Whether you have a client looking to buy a new home or refinance, exploring Non-QM options could save them time, money, and stress.

Let’s connect if you have someone in a similar situation or curious about financing options! I’ll send a link to our secure portal for any document uploads. I’m here to help you navigate your next move.

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

Rates have gone from not good to a little worse to worse than that this week! The best part is there is no economic or Tariff reason for the rise in rates. Can we please have a slow downturn starting tomorrow?

• We do loans on Non-warrantable condos!
• We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans.
• We provide loans in all 50 states, so call me with anything you need.
• Government loans (FHA/VA/USDA) are in the high 5’s and low 6’s.
• Conventional loans up to $806,500 are in the mid 6s.
• High Balance Loans from $806,501 to $1,209,750 are also in the 6’s.
• Jumbo loans above $1,209,750 are in the 6’s and 7’s.
• Bank statement loans are available with 10% down again, with larger down payments in the 6’s ++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No Ratio Loans require 30% down.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:** – Nothing new!

**Bad News for Condos***

Nothing this week!  

The full state of California naughty list has been added to MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!