Non-QM Loans are not Magic

Non-QM loans are not Magic.  They are not the greatest loan ever, no matter how some lenders promote them. They are simply another tool, and when used correctly, they help get loans done that a regular lender often cannot do.
DSCR loans are a great example.
On many commercial loans, lenders want the rent to cover 115% or 120% of the payment. That is one reason so many commercial loans today require 30% to 35% down. On the residential side, we even have a no-ratio option with 35% down. That means the property could rent for $4,000 and the mortgage could be $8,000, and as long as the borrower puts 35% down, the loan can still work. That is great, but not every investor has 35% down, and not every investor wants to tie up that much cash. We also have DSCR options with 80% coverage, which typically require 20% down. The rates with 80% coverage are higher than those with 120% coverage, but again, it is another tool to help an investor get the deal done. Oh, and with 120% coverage, you can do as little as 15% down.  

A few weeks ago, I had an investor client buying a $1.3 million investment property.
The standard market rent on the property was around $6,000 to $6,500 per month. Two other lenders reviewed the loan first and would only use that standard rent number, which meant the client did not qualify unless they put more down.
But this client rents rooms individually in the properties he buys. He had signed rental agreements from four tenants totaling $9,650 per month, along with deposits for the first month. That was the key. When I reviewed the file and spoke with the client, I knew we could properly document the tenant rents and make the loan work.
We closed 15 days later and were only 2 days late vs. the original close date. That is why experience matters. Knowing how to structure a file, knowing which lender fits the scenario, and knowing where the rocks are in the water makes it look like I can walk on water, and that really makes a difference.

Some lenders quote rates. I help agents sell the dream and make the numbers make sense for buyers, helping motivate them.
On this deal, the client was not worried about anything except profit. So, I broke it down for him:
Monthly rent: $9,650
Monthly payment: $8,321
Annual principal reduction: $9,923
Estimated 4% appreciation: $52,000
That is approximately $77,871 in first-year benefit on a $350,000 investment.
That is a 22.25% first-year return, assuming 4% appreciation and assuming rates never go down.

And if rates eventually drop to around 5.99%, he could save an additional $10,000 per year, pushing the return closer to 25%.
We saved the deal. We closed the loan, and we gained a client for life.
And the agent was pretty happy, too; she earned roughly $32,500 in commission on a deal that two other lenders couldn’t get done.
That is what Non-QM is really about. It is not about hype. It is about knowing how to use the right tool, at the right time, for the right client.

Interest Rates
Bonds are under modest pressure today, and mortgage-backed securities are slightly worse. There was no major economic bombshell, but the market is reacting to a combination of light summer trading, inflation expectations rising, and broader global/geopolitical concerns. Rates are not exploding higher, but rates are a little worse today.   

Loan Programs Snapshot

• Government loans (FHA/VA/USDA): in the 5s –
• Conventional (≤ $832,750): low 6s
• High-balance: mid to high 6s
• Jumbo: Mid 6s
• Bridge Loans  7.75-7.99

Additional options:

• Bank statement loans (10% down+)
• P&L loans (20% down, no bank statements)
• 0% down options (620+ score)
• DSCR loans (15% down)
• Buydowns Available (3/2/1, 2/1, 1/0)
• Private Money loans – Hard Money  
• Construction Loans
• 203K loans
• Commercial Loans
• Fix and Flip Loans  

Rates subject to change without notice. 

Condo Update
Good news:

• Heather Ridge is now off the Naughty List!!!!

Bad news:

• Del Prado  – Newhall – Critical Repairs – Deferred maintenance
• Palisades -  25730 Armstrong Stevenson Ranch CA 91381 – Critical repairs   – Deferred maintenance  – reserves  –  Insurance!  Yes, they hit just about every bad thing you can!  LOL! 
• Vera Townhomes -  43334 32^nd Street –  Lancaster  – Reserves are 3.3% 

We love your Non-Warrantable Condo loans!!
Need help checking a condo? Call me, and we can look it up in real time.
Also:
Full California "naughty list" available here:
https://mikemeena.com/non-warrantable-condos/

Let's Connect
If you or your clients, friends, or family need guidance, I'm here.

📞 661-291-2222 (Direct)

📞 661-714-6258 (Cell)

📞 661-260-2970 ext. 2222 (Office)

📧 Mike@AugustaFinancial.com

Sincerely,