In
today’s
mortgage
market,
traditional
mortgage
products
are
no
longer
the
one-size-fits-all
solution
they
once
were.
The
economy
is
now
driven
by
entrepreneurs,
investors,
high-income
earners,
and
young
adults
who
thrive
in
the
gig
economy.
These
borrowers
are
driving
a
demand
for
alternative
mortgage
products. 

For
these
borrowers,

non-qualified
mortgage
(non-QM)
loans
offer
a
premium
alternative
to
conventional
options.
These
loans
empower
lenders
to
accommodate
unique
financial
situations
while
expanding
access
to
a
broader
pool
of
potential
clients,
many
of
whom
might
otherwise
have
to
reconsider

homeownership
altogether.

However,
one
factor
continues
to
deter
borrowers
from
exploring
non-QM
solutions:
reputation.
Non-QM
loans
are
often
associated
with
higher
interest
rates
and
unfavorable
terms
that
verge
on
predatory
lending.
Fortunately,
there
are
lenders
out
there
working
to
change
that
perception.

Exploring
the
big
picture
of
non-QM
lending

When
it
comes
to
non-QM
loans,
borrower
use
cases
often
vary
depending
on
the
person.
Despite
that,
there’s
a
common
theme
between
each
borrower’s
use
case:
They’re
creditworthy
but
unconventional. 

One
borrower
may
be
a
social
media
influencer
with
a
Rolodex
of
clients
and
a
1099
that
would
put
some
full-time
employees
to
shame.
Another
could
be
a
real
estate
investor
with
incoming
rental
revenue
from
properties
across
the
country. 

Whatever
the
case,
these
borrowers
need
alternative
ways
to
verify
their
income.
But
there’s
excellent
news
—
non-QM
loans
are
designed
to
do
precisely
that,
giving
borrowers
the
freedom
to
use
alternative
income
verification
methods
like
bank
statements,
asset
depletion,
and
more. 

This
is
a
massive
benefit
for
mortgage
lenders
and
self-employed
borrowers
who
want
to
achieve
homeownership.
Recent
market
shifts
have
paved
the
way
for
lenders
looking
to
use
non-QM
options
in
today’s
market.

“Initially,
non-QM
lending
faced
skepticism
as
an
alternative
solution,”
said


Megan
Willie,


SVP
regional
sales
manager
at

Acra
Lending.

“However,
as
the
industry
has
matured,
more
lenders
have
integrated
non-QM
into
their
offerings,
creating
a
more
competitive
environment
in
terms
of
service,
rates,
and
product
diversity.”

Common
borrower
use
cases
when
choosing
non-QM
options

We’ve
already
identified
who
non-QM
borrowers
are
and
how
they
can
qualify
with
alternative
methods.
But
we’re
missing
the
“why”
in
this
study.
Why
would
a
borrower
choose
a
non-QM
loan,
aside
from
the
alternative
qualification
methods?
Acra
Lending
has
the
answer:

According
to
SVP
Megan
Willie,
“Non-QM
loans
offer
flexible
qualification
criteria
and
competitive
pricing,
making
them
a
compelling
option
for
second
homes
and
investment
properties.
In
many
cases,
Non-QM
loans
provide
more
cost-effective
solutions
than
agency
options,
especially
for
borrowers
with
unique
financial
profiles.”

Here
are
the
most
common
use
cases
for
non-QM
loans: 

Investment
properties
and
second
homes

Non-QM
loans
offer
flexible
qualification
criteria
for
borrowers
looking
to
purchase
second
homes
or
investment
properties.
They
also
offer
competitive
pricing,
making
them
superior
and
cost-effective
options
when
compared
to
standard
agency
options.
According
to
data
from
Bankrate,
the
average
mortgage
rate
for
a
second
home
loan
is
6.7%.
For
Acra
Lending,
non-QM
loans
for
non-owner-occupied
(NOO)
properties
start
at
6.2%. 

Debt-service
coverage
ratio
(DSCR)

DSCR
loans
simplify
the
qualification
process
by
using
a
property’s
potential
cash
flow
instead
of
the
borrower’s
income.
With
this
loan
type,
borrowers
won’t
need
to
rely
on
extensive
documentation
to
acquire
financing.
With
DSCR
loans,
it’s
a
lot
easier
for
investors
to
qualify
without
worrying
about
traditional
income
verification
requirements. 

Asset
depletion
loans

Asset
depletion
loans,
also
known
as
asset
dissipation
loans,
simplify
and
smooth
the
qualification
process
by
allowing
borrowers
to
use
their
liquid
assets
instead
of
relying
on
traditional
income
documentation.
This
is
useful
for
high-income
borrowers
who
have
a
substantial
set
of
assets
but
a
limited
level
of
reportable
income. 

Eliminating
misconceptions
about
non-traditional
lending

One
common
misconception
among
brokers
and
borrowers
is
that
non-QM
loans
are
equivalent
to
subprime
lending.
Subprime
lending
involves
offering
credit
opportunities
to
borrowers
who
are
considered
higher
risk
compared
to
those
who
are
eligible
for
prime
rates.
According
to
the
Consumer
Financial
Protection
Bureau
(CFPB),
subprime
scores
typically
range
from
580
to
619. 

However,
non-QM
loans
aren’t
designed
for
subprime
borrowers
in
most
cases.
On
the
contrary,
these
loans
are
intended
for
well-qualified
borrowers.
According
to
Acra
Lending,
the
average
score
for
a
non-QM
loan
is
around
730,
which
falls
into
the
good
credit
category.
These
borrowers
are
often
equipped
to
handle
payments,
which
moves
a
significant
amount
of
pressure
from
lenders. 

Premium
rates,
prime
borrowers:
Inside
Acra’s
Platinum
Pricing
advantage

Acra
Lending
sets
itself
apart
with
a
pricing
model
that
competes
with
some
of
the
top
non-qualified
mortgage
(QM)
providers.
The
program,
intended
for
borrowers
with
credit
scores
of
700
or
higher,
is
designed
for
borrowers
who
want
a
pricing
advantage.
The
program
is
ideal
for
borrowers
with
a
loan-to-value
(LTV)
ratio
of
80%
or
lower.

Acra’s
Platinum
Pricing
also
supports
purchases
and
refinances,
with
multiple
qualification
options
—
some
of
which
include
complete
income
documentation,
bank
statements,
1099,
DSCR,
and
asset
depletion. 

“Acra’s
Platinum
Pricing
offers
some
of
the
most
competitive
rates
in
the
industry
for
qualifying
borrowers.
This
program
is
designed
for
those
seeking
an
alternative
lending
solution
with
premium
pricing
advantages,”
said
Megan
Willie.

What
does
the
future
of
Non-QM
lending
look
like?

The
mortgage
market
isn’t
what
it
used
to
be.
More
borrowers
are
turning
toward
non-traditional
income
sources
to
get
into
the
homes
they
want.
These
borrowers
are
self-employed,
investors,
high-income
earners,
and
young
adults
who
operate
under
the
gig
economy.
Fortunately,
Acra
Lending
is
committed
to
providing
flexible,
borrower-centric
solutions
that
create
homeownership
opportunities.