Prospective homebuyers know that there are plenty of options for mortgages. For some, the non-traditional approach might be more appealing.
With the entire landscape of lending evolving on a regular basis due to market changes, technological innovations and much more, we will take a look at 8 trends that we are seeing – particularly in non-traditional mortgage lending.
It’s important that we take a look at these trends and why each of them may play a role in the lending sector itself.
Ready to see what’s been happening as of late with non-traditional mortgage lending? Let’s begin with what you need to know.
- Increased Use of Bank Statement Loan Options
Bank statement loan options are growing in numbers among those who want to take the non-traditional lending space. Contrast this with the requirement of W-2s or tax returns for income verification – which is a staple of conventional loans.
A bank statement can be used to assess a potential borrower’s current cash flow situation, whether it’s a bank account linked to their personal or business finances. For those who are self-employed, freelancers, or business owners this approach can be a blessing given that their financial health could be under scrutiny if they utilize the conventional loan option.
- Expanded Eligibility Criteria
This is where credit history, property cash flow, and asset reserves tend to weigh a bit more than normal in a non-QM lending sense. The idea here is to ensure that borrowers are able to get the financing they need without having to rely on a small set of documents but rather the financial profile that they have. Expanding the eligibility criteria could make sense in the long run.
- Growth in Interest-Only Loans
Another trend that is becoming more noticeable in the non-QM sector is the rising number of interest only loans. One of the major features of such loans is that borrowers can only pay the interest during a period of time.
What makes this even more beneficial is that it will provide borrowers with financial flexibility while making lower monthly payments. It’s an excellent option for those who are looking to grow their income for the long-term including investors that have some positive ROIs under their belt.
- Alternative Documentation Demands Are Increasing
It’s not just bank statements that are particularly useful for borrowers who want to take the non-QM route. As mentioned, lenders are expanding their criteria and their need for alternative documentation may support that demand.
For example, these documents include but are not limited to the following: 1099 forms, profit and loss statements, even documents pertaining to asset depletion methods. The requirements will depend on the borrower so be sure to carefully review them before deciding if they are worth doing business with.
- Emphasis on Real Estate Investors
For those who invest in real estate, they might find non-QM loans to be quite appealing. This will be largely due to their intent to acquire financing for multiple properties that they own – be renting them out for tenants who are on year-long or month-to-month leases.
The end goal for them is scaling their portfolio without having to deal with the roadblock of strict income documentation – something that conventional loan providers have implemented and enforced with little to no exception.
One loan that could stand out for real estate investors are debt service coverage ratio (DSCR) loans. Specifically, the property’s cash flow will be the subject of determining if the borrower qualifies for such loan as opposed to their personal income.
- Market Adjustments in the Post-Pandemic Era
One thing that the COVID-19 pandemic had created in terms of change was the mortgage landscape. As a result, non-traditional lending has made it to where flexible options are available to prospective borrowers.
Not to mention, there are shifts in income stability and more people are choosing to work remotely as opposed to the office. Nevertheless, the terms for borrowing (albeit in the non-QM space) is a bit more flexible than before the pandemic.
- Technological Advancements
The digital age has made its presence known in the mortgage lending space. As such, you’re seeing such solutions including risk assessment improvement, application process streamlining, digital income verification, and much more.
There are plenty of tools that will streamline or even automate certain processes and tasks – allowing borrowers less of a wait time to determine if they qualify for non-QM loans or similar.
- Customizable Products
Finally, offering customizable mortgage products are great for borrowers who have specific needs. This will stray away from the “one-size-fits-all” approach while implementing a tailor-made solution to prospective borrowers that have unique financial goals. This includes adjustable-rate mortgages (ARMs), repayment schedules that fit their time table and financial needs, and much more.
Final Thoughts
These key trends are creating a new landscape in non-traditional mortgage lending. Whether it’s real estate investors or business owners, these trends tend to be favorable for such borrowers to ensure that they can be able to get the monetary amount they need for their financial goals without worrying about risking potential danger to their cash flow in the process.