Owning a rental property is one way to build wealth or generate a stream of passive income. Financing for a rental property does not have to be constrained by the borrower’s income or other debt. You just need to know how to navigate around potential obstacles to the rental property mortgage your client wants.
Rental property mortgages don’t follow qualified mortgage rules
As a broker, you’re likely well aware of the factors that make a mortgage for a rental property different from a mortgage for a primary residence.
Qualified mortgages typically have more stringent borrowing guidelines because these aren’t owner-occupied properties and rental income isn’t guaranteed. Lenders are more likely to scrutinize borrowers’ income and track record as a landlord as conditions for loan approval. Some lenders qualify borrowers for a mortgage based on rents, others don’t. Credit scores, cash reserves and debt to income ratios can also carry more weight in lending decisions.
Non-qualified mortgages offer an alternative. Though once allocated to the “high risk” bucket because of features like balloon payments or negative amortization, non-QM loans have evolved to level the playing field among investment property borrowers. Now, it’s possible for borrowers who may have been turned down for a qualified mortgage despite being a good credit risk to obtain a mortgage for a rental property.
Getting a rental property loan in the new era of non-QMs
- – Experience and track record as a landlord
- – Employment status and income, particularly if they’re self-employed
- – Whether the applicant is seeking a mortgage based on rents
- – Down payment funds and where that money is coming from
What if you have a client who doesn’t fit the traditional criteria for a rental property mortgage?
Go outside the box when you research loans. Quontic’s ability to adapt has shaped the mortgage products we offer.
We can serve a wider range of borrowers compared to other non-QM lenders.
For example, we offer Investor DSCR (No Ratio) loans that allow a client to qualify using the subject property’s income only. No statement of employment or income required. No tax returns or W-2s required. The DSCR calculation is based on rent divided by costs; a ratio of 1 or higher can help a borrower qualify, versus the 1.10 to 1.15 ratio required by other lenders. There is no separate calculation for debt to income ratio because income need not be considered by the underwriters.
That’s just a sample of the borrower-friendly underwriting guidelines we employ. Because Quontic wants to help your creditworthy borrower get a mortgage, even if he or she is not able to document income in the traditional ways.
An Investor DSCR (No Ratio) loan can make rental property mortgages more accessible for creditworthy borrowers when a traditional mortgage mold isn’t a good fit. And it can also make your job easier if you have a landlord client who’s run into dead ends pursuing rental property mortgage options with other lenders.