Many borrowers need mortgage financing to help them improve their financial situation and net worth. Whether you’re an investor or own a primary residence, you may not fit into the typical underwriting sweet spot. What’s the sweet spot? The cohesive jelling of the big four—work history, income, credit score and liquidity. If you meet the big four lending criteria, you’re in the sweet spot.

There are those borrowers who in some way fall outside the sweet spot, and you’ll often hear them say (if you’re a mortgage advisor) “My credit score is a 550,” “I paid 60 days late on my mortgage,” “I paid 90 days on my mortgage,” “I don’t have any seasoning on the property, but it’s worth more than I paid,” “I filed for bankruptcy six months ago,” “I make money, but I don’t show it on my tax returns,” “I own more than10 investment properties,” “I need to close in an LLC. Is that ok?,” “I don’t have much liquidity,” “Can I use a gift to buy an investment property?,” “I don’t have a green card. Can I get a mortgage?,” “I don’t get paystubs,” “I owe a lot of money, but I have equity. What can you do?,” “I have liquidity and savings, but my income is low,” and on and on and on… the good news is, as they say, “There is a pot for every cover.”

Alternative lending aka the buzzword “Alt A” lending in the mortgage world refers to mortgage financing that is not in the box or considered conforming to the standard underwriting guidelines. After Dodd-Frank was passed a whole bunch of compliance and regulatory guidelines came out that pretty much did away with the no doc and stated income loans because they wanted to eliminate any potential for fraud, embellishing and lying to get a mortgage. The market has changed and old wounds are beginning to heal, and with that healing come forth new mortgage financing products and opportunities for those borrowers who are self-employed, who are recovering from blemished credit and who have recovered from the real estate market downturn.

Some of the new products involve bank-statement-only programs, low credit scores, shorter waiting periods between financing and housing events (deed in lieu, foreclosure, bankruptcy) and higher debtratio calculations (total debt divided by your income). There are even stated income products for those who want to buy or refinance investment properties. The key is not only knowing what bucket you fit into, but to know when which type of financing and program should be used. (A mortgage expert would be invaluable.) Examples of programs available for those “out of the box”:

Occupancy:

Owner Occupied only (see Investment properties below).

N/O/O properties.

Property Types:

SFRs, Condos, Townhouses, 2 to 4 units.

Condotels—no area restriction.

Non-Warrantable condos—Max LTV 80%

Debt to Income (DTI ratio is debt divided by income):

90.01-95% LTV: 43% max DTI, 80.01-90% LTV: 50% max DTI, Up to 80% LTV: 55% max DTI (No I/O allowed)

Income Documentation:

12 or 24 months of bank statements (no tax returns!)

VOE (verification-of-employment-only program): No paystubs needed

For non-self-employed borrowers only (employees):

1099 Only Program: for non-self-employed independent contractors

K-1s-Only Program: 2 years of K-1’s CPA, certified tax preparer or enrolled agent attesting that K-1s are accurate & borrower self-employed for two years or more.

P&Ls-Only Program—for self-employed borrowers only:

Full recent year of complete profit and loss statement and complete YTD profit and loss statement

Professionally Prepared P&Ls—verifiable letter from licensed CPA, certified tax preparer or enrolled agent attesting that they prepared the P&L statements.

Borrower-Prepared P&Ls—borrower to sign and date the P&Ls and attest to the accuracy of the P&Ls via a handwritten, signed and dated letter, and a verifiable letter from a licensed CPA, certified tax preparer or enrolled agent attesting the borrower-prepared P&Ls are factual. Proof that the borrower has been self-employed for that business for two years.

Asset-Depletion Program—Available for All Employment Types Including Retired/Unemployed:

Qualifying income is based upon total assets eligible for depletion, less down payment, less out-of-pocket closing costs, less required reserves, divided by 84. This amount will be used as the monthly income. Debt calculations will need to include all debts, not just housing debts.

Down Payments or Liquid Cash Reserves:

All down payment funds must be sourced and seasoned 60 days plus six months PITI in liquid cash reserves from 90.01-95% LTV. All down payment funds must be sourced in the last 30 days from 80.01-90% LTV. 100% gift funds are acceptable up to 80% LTV—direct relative. $1M-$2M 50% can be gift—$2M+ no gift.

Pre-Pay Note:

No pre-payment penalty on any consumer products.

I. Investment Properties—80LTV Purchase/70LTV Refi

• No income verification (leave income blank on 1003)
• No DSCR (rent does not have to cover PITI)
• No DTI
• No reserves
• Vacant OK!

II. Non-Warrantable Condos

• No condo certs or HOA questionnaires!
• NOO and O/O properties
• Condo conversions ok
• Current litigation (must be disclosed)

III. Foreign National Program—NOO—Borrower’s primary and employment is overseas

• No income verification (leave income blank)
• No DTI, no reserves, no credit ok
• Passport verification only
• 70LTV purchase and 65LTV refinance.
• No DSCR needed—the property can be vacant!

IV. Alt Doc Owner Occupied Programs—No tax returns or 4506!

• * Up to 80LTV purchase and 70LTV refinance
• P@L only—borrower prepared ok with CPA letter!
• * Or one or two years—Your Choice:
• K1 only
• 1099 only
• 12-24 months of business or personal bank statements
• And VOE only for wage earners (no W2 or tax returns)

V. Low Down Payment Jumbo Loans

• 90LTV to 1.499m
• 85LTV to 1.999m
• 80LTV to 2.999m

VI. Other Important Mixed-Use Options:

• 500+ scores OO and 600+ NOO
• One day out of BK, FC, SS is ok up to 70LTV
• No Credit Borrowers OK to 80LTV!
• New to workforce OK to 80LTV! (Only 1 paystub needed)

Where do you fit in? It’s important to first deal with reality by knowing what borrower type you are. This allows you to prepare properly, so that no time is lost in obtaining the financing that you need. Let’s break it down:

Employee

Least amount of documentation required. Need last two years of W-2s, one month paystubs and 2 months savings statements.

Self-employed

Need: Depending on the program, one to two years of individual returns and business returns and possibly a year-to-date profit and loss statement. There are now stated and no-income programs available.

Divorced

You may be a divorcee who is self-employed or an employee. You may make enough money that you can qualify for a loan all by yourself as an employee or self-employed business person. In addition to the documents above, you would need a divorce agreement which should stipulate alimony and child support payments.

Older borrowers (over 60)

There’s no differentiation in terms of the documentation for qualifying for a mortgage, but being over 60 allows you to take advantage of the general mortgage programs in addition to the government-insured program called a reverse mortgage.

Investor

Typically if you’re an investor that would put you in the self-employed category and you would require the documentation as mentioned above in addition to leases on any other property that you’ve owned.

Life-event affecting credit

If you have experienced hardship, foreclosure, deed in lieu scenario, 11 or 13 bankruptcy, you may need to have a great letter of explanation along with supporting documentation as to the reasons of the occurrence causing a decline in credit score. Some programs have waiting periods from the event, but on the bright side, there are programs called fresh start that would eliminate waiting periods that other loan programs require.

Foreign national

In the last couple of years, many foreigners have used their wealth to buy high-end residential real estate located in the U.S. The 2 obvious reasons: (1) U.S. real estate is considered a safe haven, and (2) They had an advantageous dollar exchange rate.

In general, obtaining a loan for a foreign national (FN) non-permanent resident alien (NPRA) or permanent resident alien (PRA) is not much different from doing a loan for a U.S. citizen in that financial documentation for income, credit and assets is still required. Underwriting may be slightly different.

The classifications are as follows:

• FN: The borrower has no green card and no visa or has income from foreign sources.
• NPRA: The borrower lives and works in the U.S. and is here on a visa (of which there are many different types and must be unexpired and valid for at least six months). Does not have a green card. Must have U.S. employment contract and social security card.
• PRA: The borrower lives and works in the U.S. and has a green card. Usually must have two years U.S. income/tax returns.
• The moral of the article is, when it doubt, know that you can be bailed out!

Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. He is a real estate mortgage banker & business financing expert with over 30 years’ experience. He currently has 180 five-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com  [email protected]