Benefits of Non-QM Mortgages

Non-QM mortgages can provide many benefits to borrowers who don’t qualify for traditional mortgages due to various reasons such as self-employment, foreign nationality, or other unique financial situations. Some of the key benefits of Non-QM mortgages include:

1. Flexibility in Documentation: Unlike conventional mortgages that require very specific documentation of income and employment, Non-QM mortgages offer flexibility in documenting income. This is beneficial for self-employed borrowers who may not have traditional pay stubs or W-2 forms to verify their income. Non-QM mortgages allow self-employed borrowers to provide alternative forms of documentation such as bank statements, business financials, or even CPA letters to verify their income.
2. Expanded Credit Criteria: Non-QM mortgages may have more lenient credit requirements compared to traditional mortgages. This can be beneficial for borrowers with less-than-perfect credit histories or unique credit profiles. Non-QM mortgages may consider factors such as payment history, reserves, and other compensating factors to assess the borrower’s creditworthiness, rather than relying solely on credit scores.
3. Customized Loan Terms: Non-QM mortgages offer flexibility in loan terms, allowing borrowers to customize their loans to suit their unique needs. Borrowers can choose from options such as interest-only payments, adjustable rates, or longer loan terms, which may not be available with traditional mortgages. This flexibility can help borrowers tailor their mortgage to their financial situation and achieve their homeownership goals.

Use Cases and Examples of Non-QM scenarios

Non-QM mortgages are used by a wide range of borrowers who may not qualify for traditional mortgages due to their financial situation. Some common examples of borrowers who can benefit from Non-QM mortgages include:

1. Self-Employed Borrowers: Self-employed borrowers often face challenges in obtaining traditional mortgages due to the nature of their income. They may have irregular income streams or may write off a significant portion of their income on their tax returns, which can affect their ability to qualify for a conventional mortgage. Non-QM mortgages can provide self-employed borrowers with flexible income documentation options, making it easier for them to qualify for a mortgage.
2. Foreign National Borrowers: Foreign national borrowers, who do not have U.S. citizenship or permanent residency, may face hurdles in obtaining a traditional mortgage. Non-QM mortgages can offer financing options for foreign national borrowers, allowing them to purchase a home in the U.S. without the need for a Social Security number or credit history.
3. Investors:  Investors who have large property portfolios or are in need of financing based on potential rental income can benefit from a DSCR (Debt Service Coverage Ratio) loan, which uses current or potential rental income on a property to qualify, rather than traditional income and employment documentation.
4. Borrowers with Unique Financial Situations: Non-QM mortgages can also benefit borrowers with unique financial situations such as those with significant assets but limited income, retirees with unconventional income sources, or borrowers with previous credit events such as bankruptcies or foreclosures. Non-QM mortgages provide these borrowers with alternative financing options that may not be available with traditional mortgages.

Cons of Non-QM Mortgages

While Non-QM mortgages offer many benefits, they also come with some potential downsides that borrowers should be aware of. Some of the negative aspects of Non-QM mortgages include:

1. Higher Interest Rates and Fees: Non-QM mortgages may have higher interest rates and fees due to the perceived increase in risk to these non-traditional products.
2. Complex underwriting:  Since Non-QM loans offer more flexibility in guidelines and documentation, the underwriting process can also be more tedious        with borrowers being asked to provide more documents and explanations throughout the loan process.  For this reason, it’s a good idea if using Non-QM financing to give a few extra days for the underwriting process.  MasonMac underwriters Non-QM products in-house with MasonMac underwriters, so the process is more streamlined than working with wholesale/mortgage broker options.
3. Non-QM mortgage funds come from a smaller pool of investors with a smaller pool of overall funds than conventional loans which have oversight from FHFA.  For this reason, the Non-QM mortgage market can be more volatile and subject to frequent changes to product availability.  This is a pro and a con, because this also leads to a more nimble market, with new products frequently coming to market.

Non-QM mortgage loans aren’t a solution for everyone, but there is no doubt they have a place in today’s market for borrowers who cannot qualify for traditional mortgage products.  Understanding Non-QM loans and working with a lender that specializes in them not only presents more loan options but can make the process of getting financing easy even for those who don’t qualify for conventional or government-backed mortgage loans.

Curious about Non-QM loans, or have any questions about specific products?  Feel free to ask an expert by clicking here for a quick response!

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This question is one of the most common questions we see from consumers, investors, real estate agents, and many others with interest in the real estate market.  The answer is ‘yes’.  But it also depends on your specific situation, what’s important to you, and where you are financially.

The reason the question “is it a good time to buy a house” comes up frequently today is because interest rates have risen substantially year over year, making the monthly payment rise for many people considering a home purchase.  With these higher payments, many are wondering if it’s a bad time to buy a home, but it’s important to remember that with increasing rates has come a softening market – meaning buyer’s today are seeing both lower median home prices and reduced competition, allowing for seller concessions that weren’t widely available during the market craze of 2020-2021.  So while payments might be higher today, total price tags may also be lower, allowing buyers to keep more money in the bank at closing time.

Median home prices in the US have come down from their 2021 highs

The other consideration many people have when asking ‘is it a good time to buy a house’ is what will happen with home values in the future.  The real estate crash of 2010 is still fresh in a lot of minds, but it’s important to look at the economics of today’s market and compare them to the crash to see what’s likely to happen in the coming months.

One of the important considerations is one of the foundational aspects of economics and pricing – supply & demand.  If you consider the US population has continued to increase and believe that means more people will require housing, the next place to look for a clue on where home values will go is to housing supply.

Housing inventory is far below the 2007 market peak

In the image below you can see that housing supply is far below the supply of homes that was on the market in 2007 preceding the crash in home values.  While low inventory isn’t a guarantee of home price growth, in terms of supply and demand, the lack of inventory for a growing population should provide some support for home values and continued appreciation, even if that appreciation is slower than the abnormally high appreciation rates home owners saw in 2020 and 2021.  It’s also important to note that real estate is very local, and some markets have more inventory than others, along with varying populations, so examining these numbers in your local market is important!

So interest rates are up, but it appears home values have some support.  Interest rates also ebb and flow, so while you should never buy a home based on the hope that your payment will eventually get cheaper, that possibility does exist!  If rates dip, refinance possibilities may exist for home owners to reduce their monthly mortgage payment, but this is no guarantee – it would just be a cherry on top for today’s would be home buyers.  As you can see below, home prices have historically climbed on a consistent basis outside of the great recession over a decade ago, and for that reason home ownership has been a key metric in helping Americans establish wealth and grow their net worth.  For many, the alternative (renting) doesn’t offer that same level of financial security.

Home values have climbed since 1975

So while we’re a mortgage company and home ownership is in our interest (pun intended), a look at the data supports home ownership being a great idea for those who can afford their monthly payment, and those who have the financial stability to consistently make a mortgage payment.  The lack of inventory nationwide is good support for home values, and rising rates have diminished some demand, giving buyers more power and control in the purchase process than they’ve had in recent years.

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A mortgage rate lock allows customers in need of mortgage financing to “lock” in their interest rate.  This is an important feature of mortgages because the markets that influence mortgage rates (Mortgage backed securities, or MBS) trade each day and in certain markets can be very volatile.  Rates can change daily, and sometimes even multiple times in a single day, so having the option for a mortgage rate lock can protect against some of that volatility.

How It Works

With most mortgages a mortgage rate lock happens during the process and a rate is locked to cover the period of time from when the loan process starts through closing and funding.  A borrower will select a lock period and their rate is set at the locked rate for the duration of the lock period.  The most common mortgage rate lock time frames are 30 or 45 days, but in extremely busy markets it can be more typical to see 60 day locks.  In improving markets when rates are going lower, sometimes a lender will wait until just before closing and do a 15 day (or less) rate lock.  Typically, the shorter the rate lock period, the better the rate/pricing will be.

In other situations where a customer wants to lock in a rate to avoid market volatility (ie a market where rates are expected to go up), a mortgage rate lock can be obtained for a longer period of time.  In some cases, this requires an up front fee, usually used more as a deposit that gets refunded at closing, as is the case with MasonMac’s “Lock & Shop” program .  This type of lock can protect home buyers during a new build, rebuild, or a situation where they’re looking for the right home and want to ensure their monthly payment ends up being what is expected.  These longer term mortgage rate lock programs offer that option.

What If the Markets Get Better (or Worse)

By the very nature of a mortgage rate lock, if markets get worse (rates rise), a borrower is protected by their mortgage rate lock.  The rate on their loan cannot increase if it’s locked, even if market rates rise.  But what if rates get better after a borrower locks in?  There are some protections in place.  Usually, if the market sees just slight improvements, a locked loan will retain it’s locked rate.  But if the market improves substantially, borrowers can be offered the opportunity to “float down” their rate to the current market levels.  Sometimes there is a cost for this, but a borrower who has already locked their rate can take advantage of an improving market.  This makes a mortgage rate lock a good idea because in a bad market (rates rising) a borrower is protected, and if the market gets really good really fast, a borrower can usually still take advantage.  Every lender has a different policy on “float downs” so it’s important to ask your loan officer to explain further.

How to lock your rate

Your MasonMac loan officer can review lock options with you to see which type of mortgage rate lock best fits your situation.  If you’re interested in new builds and think rates may go up (or the numbers for you to qualify are tight and rising rates could disqualify you from a loan completely), our lock & shop option may be best.  If you’ve identified a home and are under contract, a shorter term lock would offer you better pricing and protection to your rate through closing.  Our experienced team of loan officers can help you select the option that’s right for you, and talk to you about the best mortgage rate lock options available.  Once you decide to lock, it’s an easy process for your loan officer to make it official, and you’ll receive documentation that reiterates the terms of your mortgage rate lock.

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Enter, MasonMac’s Lock & Shop loan program.  With our Lock & Shop product, home buyers can lock in their interest rate for an extended period of time prior to identifying a property.  This is a great benefit to buyers because they can take the time to find the right home without the pressure of a rising rate environment weighing on the decision making process.

So buyers are protected from volatile rate increased while shopping for a home, but what if rates improve while they look for a home?  Wouldn’t the locked rate then be a bad thing?  MasonMac has you covered!  Our Lock & Shop product features a 1 time float down option, so if the market improves, our customers are able to take advantage by choosing to exercise the float down option within 30 days of their settlement to take advantage of the improved market.

With the float down function, MasonMac customers get the benefit of both protection from rising rates and the ability to take advantage of an improving market, offering some peace of mind to what can be an otherwise stressful home buying process.

When considering buying a home, we think you’ll love the options we present – with long term locks, this Lock & Shop program, and our Buyer’s Advantage process, we put our customers in the best place for a stress-free house hunting and home buying process.  Add to that our highly experienced team of loan officers ready to assist with in depth product knowledge and armed with the technology to streamline the loan process, and home buyers are in the best of hands when working with the team at MasonMac!  

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There’s a lot of economic jargon being tossed around in headlines these days, and one of the hot topics out there is inflation.  To start, it’s important to understand what inflation is.  When the value of a currency diminishes, the result is inflation – basically, you get less for the same or more.  The cost of goods and services increase, costing more money for the same (or worse, less) products or services.  There are many causes of inflation, and it’s a pretty complicated economic phenomena that has caused hardship for many people, and in the worst cases of hyperinflation, has even destroyed currencies throughout history.  The biggest question on many people’s minds today is ‘will inflation go down?’, often followed by ‘when?’.

Will Inflation Go Down?

Inflation is typically analyzed within 2 economic reports – the CPI (consumer price index) and PPI (producer price index).  Both gauge inflation, but PPI excludes volatile energy and food prices.  Each report is analyzed for month-over-month changes, and these month-over-month changes are added together over a 12 months cycle to determine an annual rate, which is usually the metric shared when discussing “inflation”.  For example, if we started with 0% inflation, and each month for the next 12 months, there was a monthly increase of 1%, inflation at the end of that year would be 12%.  This is important because current inflation is important, but it’s equally important to recall the months current readings are being compared to (each month replaces the same month’s reading from the previous year).

It’s important to understand how inflation is calculated to have an idea of when it may go down.  For example, summer of 2021 saw a small dip in inflation, and with inflation currently on the higher end of the spectrum, lower 2021 numbers will likely be replaced by higher numbers for the same months in 2022, making it unlikely that inflation will see a dip this summer.  However, because of the Fed’s rate hikes (an attempt to reign in inflation by making borrowing more expensive) and the fact that inflation was high in the fall months of 2021, it’s very possible we’ll see inflation numbers start to get some relief in the fall.  You can see how inflation has ebbed and flowed in the chart below, so when you see inflation numbers in future months, you can see the month’s being replaced, too, to determine overall inflation.

Will inflation go down? We’ll need to see lower month over month numbers than last year to see overall inflation dip, and summer 2021 saw relatively low inflation compared to fall 21′

This helps to answer the question “when” inflation might go down.  Assuming the Fed can reign in some inflation with their rate hike plan, and also assuming supply chains begin to normalize, you can see above inflation numbers were at a recent low in July-August 2021, so while month-over-month readings in 2022 are replacing these relatively low numbers, year over year inflation is likely to remain high.  Once new numbers begin replacing the higher numbers of late-2021 and early-2022, that year-over-year number, or the annual inflation often presented in headlines, may see some relief.

How does this relate to your mortgage or home buying plans?

A phrase we like to use is “you date your mortgage, you marry your house”.  Since inflation has a relationship with mortgage rates (all else being equal, higher inflation = higher mortgage rates and vice versa), it means mortgage rates may be set to remain on the higher end this summer, with some relief in the not so distant future!  For home buyers, higher rates have pushed some buyers out of the market, and with increases in home inventory in many markets, there may be a great buying opportunity.  And while no one wants a higher rate, if you consider most higher rates equate to higher payments in the ‘hundreds’ of dollars, the reduction in buyer competition and increases in home inventory may mean offers on homes don’t need to be ‘tens of thousands’ over list price as we’ve seen in many markets over the past 2 years.  And if & when rates dip, today’s home buyers may have a refinance opportunity to reduce their payment.

For anyone trying to time the market, it’s a tough task – when we look at charts, data, and history, it’s easy enough to make predictions, but there is still uncertainty over the supply chain, COVID-related issues in many export-heavy countries, and geopolitical issues that are tough to predict.  Our advice is that if you’d like to buy a home and you can afford the payment, it’s a good time to buy!  We recommend contacting a MasonMac Loan Officer before you begin your home search so you’re prepared and informed of the current market, and can be in the best possible position to begin to enjoy the benefits of home ownership!

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In today’s world of competitive markets, short inventory, and rising purchase prices, things are tough for home buyers (and sellers, too!).  With sharp appreciation and bidding wars becoming more common, it seems the market is unaffordable, but when diving into the data, it appears that throughout the US, most markets are still very affordable based on wage growth and overall economic factors.

This is, of course, based on a certain definition of housing affordability.  Homes have appreciated in many markets in the 10-12% range recently, and this is the reason many people find things “unaffordable”.  What cannot be discounted though, is wage growth, which is averaging 7% year over year at the moment.

Homes appreciation 10-12%?  Wages increasing 7%?  Sounds unsustainable, right?  Wrong!  Taking a quick glimpse, it appears that things can’t continue this way, but wage growth was near stagnant for a decade, and recent increases leave a lot more room for home prices to continue to climb – great news for home buyers, better news for home owners, and bad news for those “waiting for the dip”.

Let’s take a look at a scenario for a $500,000 mortgage, for a customer making $6500/month income.  We’ll assume, just for math’s sake, the mortgage is at a rate of 3.5%, and the buyer is using a 10% down payment.  Since our loan is $500,000, this makes the home price $555,000. The mortgage payment in this scenario (principal + interest) would be $2245/month.

Home prices at $555,000 and 10% appreciation would make the price after 1 year $610,500.  Someone buying that home with 10% down would have a mortgage of $549,450, and at the same interest rate, the monthly payment is $2,467, or $222/month MORE than the same home the year before (again, assuming a 10% appreciation rate).

Let’s also take a look at the very important income figures – that $222/month increase in mortgage payment is actually only 3% of the $6500/month earnings of our example borrower.  With wages increasing an average of 7%, the average earnings of a $6500/month employee would be expected to be $6955/month with wage growth of 7%, or $455/month more year over year.  And that $455/month more than covers the $222/month increase in mortgage money in this scenario.

Even with home prices going up, in today’s market of increasing wage growth, homes are still affordable.  In fact, today’s market represents the 7^th most affordable market in history, statistically speaking.

Even though housing affordability is still statistically reasonable, it does take some work to get an offer accepted, and there’s certainly a line where the price of a home is “too much”.  We offer our customers a glimpse at the local market using state of the art data tools that are specific to your local market, so if you have questions on how much you can qualify for, how much payments would be, or what the overall health of your local real estate market is, we can help!

Reach out today and we can help you determine your best path to home ownership!

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When it comes to buying a home, many people are concerned with their debts.  Headlines frequently discuss student loan debt, and how it holds people back from home ownership – particularly the millenial generation.  Another easy “fact” to find online is that lenders want your total debt, mortgage included, to exceed no more than 36% of your gross income.  Like most things online, these headlines are at best misleading, and usually, just blatantly false.

You can get a mortgage loan even with student loan, auto, credit card, or other debt

While mortgage lenders do look at a borrower’s total debt picture – credit cards, student loans, auto loans, and other debt – it doesn’t keep as many people from home ownership as the headlines would lead you to believe.  Some loan programs allow borrowers to have a debt-income ratio (the amount of debt, including your mortgage, as a percentage of your total gross income) as higher as 55%.  And lenders do not look at debt that’s not on your credit report (with the exception of some loan programs like VA loans, which look at utility costs and disposable income more than actual debt load), so things like your cell phone bill, cable, and utilities aren’t factored in.  So while it’s a good idea to keep your debt carefully managed and to not borrow more than you can handle, lenders are more flexible than most people are led to believe.

Buying a home with debt is in fact very common – nearly everyone has some kind of outstanding debt – be it student loans, auto loans, or credit cards, and certain loan programs can be extremely flexible – especially when it comes to mortgage with student loan debt.  For some loans, people can qualify based on income-based repayments, or loan forgiveness, depending on the student loan terms.

Bottom line, having debt should not prevent you from looking into home ownership.  In fact, with heavy debt being one thing that prevents the accumulation of wealth, having a home and mortgage that offers the benefits of appreciation and amortization is a great way to build a healthy financial future while paying off student loans or credit cards.  Even better, once you own a home, you can use your home equity to access cash to pay down or off higher interest rate debt – for example, if you have an 18% rate credit card, and can take cash out of your home at a rate of 4-5%, you can potentially see a huge monthly savings and use that savings to pay debt down faster – home ownership offers options.

So can you buy a home with debt?  Can you qualify for a mortgage even if you have a lot of student loan or credit card debt?  Ask an expert today to find out what options are available to you – we’re happy to help!

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