Non-QM loans in Chicago are alive and doing well. Non-QM loans are those loans against 1-4 unit properties that do not abide by the rules set in place after the 2008 melt down, loans with risky features or loans that do not fully vet a borrower. Asset-based lending, loans based on the cash-flow of a property (DSCR) or bank statements fall in this category.
If you’re interested in qualifying for a loan based on assets, cash flow of a property or bank statements, give me a call at 847-840-8884.
Chicago and its suburbs has many borrowers interested in alternative ways of qualifying for a mortgage. So, there are lenders that are willing to give such loans. But not all. And those that do, set their own rules, so finding the right one for you takes work. Unless you work with a Chicago mortgage specialist, like me, who works with several such lenders and knows their programs.
When the Corona virus hit the US, most lenders paused their non-qm programs. They have, since then, restarted them. At first cautiously, then less so. They are still more cautious, though, then they were pre-Corona virus.
The basic principles are the same, the credit score requirements, the max. LTV (loan-to-value ratio) is lower, reserve requirements are higher or appeared where they did not use to exist.
Short Overview of Non-QM Loans in Chicago
Here is a short discussion of the most common non-QM loans in Chicago.
Asset-Based Loans
These are loans that are based on assets that can be easily converted into cash (pensions, mutual funds, etc.) or cash. Most lenders take 60% of the value of a retirement account and 70% of the value of other funds as qualifying funds. They divide that by the loan term months., to come up with a borrower’s monthly income.
So, if a borrower has qualifying investments worth $1,000,000, their monthly income for a 5-year loan is $1,000,000x.70/60=$11,666.66.
Same borrower’s monthly income is going to be $8,333,333 for a 7-year loan.
These loans do not take into account if a borrower is employed or not.
If you’re interested in qualifying for a loan based on assets, cash flow of a property or bank statements, give me a call at 847-840-8884.
Cash-Flow Loans
These are loans based on a property’s income vs expenses. They do not take into account anything else but a borrower’s score.
Pre-Corona virus, there were lenders that were willing to lend if the ratio was 0.90%. Yup, the property could be losing money and they were lending. They charged a higher interest rate but they were lending against such properties.
I have not seen that come back, though there are lenders that will lend based on cash-flow if the property breaks even. Yup, the DSCR (debt-service-coverage ratio) can be 1 and I have lenders that will lend, assuming the credit score is there.
Bank Statement Loans
These are loans for self-employed people whose incomes are higher than the past 2 years of tax returns show. Borrowers qualify based on 1 or 2 years of personal or business bank statements.
Lenders add up all the deposits (except those that are transfers from another of the borrower’s accounts and those that look like a one-time occurrence and refunds).
For personal bank statements, whatever the qualifying deposits add up to is divided by 12 or 24 and that is the borrower’s monthly income.
For business bank statements, whatever the qualifying deposits add up to is divided by 12 or 24 then multiplied by an expense factor. The expense factor can be based on that of similar businesses, on profit and loss statements, or the business’s accountant. (Which one is used, depends on the lender.)
Non-QM Loans in Chicago and Mixed-Use Properties
Many non-qm lenders active in the Chicago area do not touch mixed-use properties. Those that do, have requirements that vary a lot. All of them have interest rates 3 or 4 points higher than they have for a residential property with the same number of units.
All of them want the residential part of the property to be predominant. In practice, that means they lend against 3 and4-unit mixed-use properties but not against 2-unit mixed use properties.
Yes, Chicago has 2-unit mixed-use properties where the residential part is larger, sometimes significantly larger, than the commercial part. If that’s your case, give me a call at 847-840-8884, I have lenders for you.
Non-QM Lenders in Chicago and Full-Doc Qualifying for a Mixed-Use Property Loan
Most Non-QM lenders that lend against mixed-use properties in Chicago and its suburbs I know do not have full-doc qualifying for a mixed-use property. Some do have full-doc qualifying for any 1-4 unit residential property, though.
If you have a mixed-use 1-4 unit property and you’re going to live in it, your best bet is an FHA loan (as long as the residential part is 51% of the building). That is to say, unless you qualify for a VA loan, then a VA loan is your best choice.
Non-QM Loans and Interest Rates
Investment mortgage loans have higher interest rates than mortgages for owner-occupied properties. Non-QM investment mortgage loans (only used for investment properties) have even higher rates: documenting income fully is less risky to lenders. If you’re more interested in getting low mortgage rates than anything else, you show full documentation.
