What Is an Alternative Mortgage?

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Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

What Is an Alternative Mortgage?

 

Every so often in popular music, movies, art and culture, the unconventional becomes the rage, the "alternative" becomes mainstream.  When it does, it usually reshapes people's ideas of what's "normal" and it can redefine what's acceptable --- even preferred --- for a generation or more.  But...mortgage lending is not quite that exciting.

 

No, instead, alternative mortgage lending, also known as "non-QM" or "uncoventional mortgage" or even yesteryear's "Alt-A," simply provides a viable solution to home loan scenarios that don't quite fit in the relatively narrow box of convenional mortgages.  Conventional loans include mainstream conforming loans, FHA and VA programs and even the widely-accepted jumbo mortgage options for those who need loans with higher amounts.  But for now, let's focus on some of the main alternative mortgage programs and how they help buyers and homeowners in the real world.

 

Asset Depletion

An asset depletion loan allows a buyer or borrower to leverage his/her cash equivalents, investments and sometimes even retirement accounts to derive a hypothetical income stream that can be used for qualifying. These assets do not need to be moved or liquidated, just documented. For those who have sufficient net worth but insufficient traditional qualifying income, an asset depletion loan (also known as asset-backed, asset utilization, asset amortization, etc.) can prove an ideal solution.

 

Bank Statement Qualification

Business owners who show strong income into their business may want to consider a bank statement loan as an alternative to a stated income loan. For a bank statement qualification, we will typically examine 12 months of business bank statements. We'll total all of the legitimate business deposits and we'll apply an expense ratio to that sum. The resulting figure is the qualifying income. For those who "write off" a lot of business income on tax returns, a bank statement loan may circumvent that age-old challenge, because for these programs, no tax returns are required.

 

Debt Service Coverage Ratio (DSCR)

For the real estate investor who will struggle with a conventional mortgage qualification, we now have the debt service coverage ratio, or DSCR, home loan option. This program looks at the property's income and nets out the housing payment on it. As long as the ratio is positive (and all other qualifying criteria are met), we have a deal.

 

Another great aspect of alternative lending is that some of the features above can be combined, or other positive aspects of a borrower's profile can be added.  For instance, those who have a lot of equity in real estate may be able to parlay some of it into qualifying income, then combine that with regular asset depletion and circumvent an issue a conventional lender may be having because this same person's tax returns don't really show the fair story. 

 

The moral of the story is that there's a "makes sense" element to approving alternative mortgages and if you feel that the mainstream lending industry hasn't given you a fair shake, we are here to help match you to a program that sees the light and gets you a great outcome.

 

Get on the snake, 

 

 

Robert J. Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

 

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

 

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood ChicagoIL 60613 - (866) 934-7283

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Tags:
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Ambassador
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Rob Non-QM products have created opportunities for Buyers who have not had options for several years now.  Interest rates are high, but given the risk, they are reasonable.

Feb 06, 2020 08:58 AM #1
Rainmaker
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Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Hi Rob... this was a very interesting and enlightening "read."  I was aware of some of these instruments but not the asset depletion one.

Feb 06, 2020 01:47 PM #2
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Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

I have done some non-confirming loans for investors including 40 year mortgages and some fixed rate mortgages for thos who have more than 10.

Feb 06, 2020 02:12 PM #3
Rainmaker
3,513,826
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Rob - I like how you used the popular culture "alternative" in your post.  Some may think some of your mortgage financing examples are a bit unconventional but for others they may be the ideal fit.  Knowing how to "size up" those opportunities is an important one in sales/customer service.  

Feb 07, 2020 04:27 AM #4
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Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Rob, sounds like there are a lot of loan options most of us don't consider. I have heard of asset depletion, but honestly, haven't had any clients use it to date. I'm sure there are times when these alternative loan products fit the bill. 

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Rainmaker
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Rob Spinosa

SVP of Mortgage Lending, Marin County
Can I Get a Jumbo Loan with 10% Down?
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