Traditional Mortgage Lenders typically offer financing in a person’s individual names and for properties that are 1 to 4 units. It is important we confirm the lender’s requirements to make sure there is no issue obtaining financing when looking at this option. 

Advantages:

• Up to 30 yr. fixed rates 
• If it’s a Second Home, the rates can be comparable to financing for a primary residence.
• Typically no prepayment penalties.
• Lower down payments
• Lower interest rates

Disadvantages:

• Borrower is the Individual rather than an Entity such as an LLC which is more difficult if there are multiple owners.
• Loan is reported on the Individual’s Credit Reports.
• Only 1-4 family properties and Warrantable Condos qualify.
• May be more difficult to qualify because it follows the Fannie Mae/Freddie Mac guidelines.

Non-Qualified Mortgage Lenders typically offer financing in a person’s individual names or in an entity name and for properties that are 1 to 4 units and sometimes up to 8 units depending on the lender. It is important we confirm the lender’s requirements to make sure there is no issue obtaining financing when looking at this option. 

Advantages:

• Up to 40 yr. fixed rates 
• Interest Only is sometimes offered
• If it’s a Second Home, the rates can be comparable to financing for a primary residence.
• Many ways to qualify income by using bank statements, assets, property’s DSCR (Debt Service Coverage Ratio), etc.
• May have programs available for Foreign Nationals, etc.
• Depending on the lender, most types of properties may qualify including mixed-use, up to 8 unit properties, condotels, non-warrantable condos.

Disadvantages:

• Higher interest rates due to the added risk
• Require larger down payments
• Borrower may be the Individual rather than an Entity such as an LLC which is more difficult if there are multiple owners. The lender typically allows the property to still be deeded in the LLC.
• Loan may be reported on the Individual’s Credit Reports (Need to ask the lender prior to submitting loan if this is important to you)

While this program may have similarities to Non-QM (Non-Qualified) Mortgage Lenders, this program is different in that the Entity is the borrower and the individual owners are Guarantors, just like a typically commercial loan. The lender is focused on the Debt Service Coverage of the property rather than the individual’s incomes. They look at the market rents divided by the payments with taxes and insurance included and depending on the ratio, the rate will be decided accordingly. In addition, they also look at all of the guarantor’s credit scores to also decide on a rate.

Advantages:

• Up to 30 yr. fixed rates 
• Interest Only is typically offered
• No personal income verification, they primarily look at the property’s rents and expenses.
• Loan not reported on owner’s/guarantor’s individual credit reports.
• May have programs available for Foreign Nationals, etc.
• Depending on the lender, most types of properties may qualify including mixed-use, up to 8 unit properties, condotels, non-warrantable condos.
• Rates similar to Non-QM Lenders but loan isn’t reported to the credit bureaus.

Disadvantages:

• Higher interest rates due to the added risk
• Require larger down payments
• Typically have prepayment penalties.
• Typically require escrow for taxes and insurance.

While this program may have similarities to Non-QM (Non-Qualified) Mortgage Lenders, this program is different in that the Entity is the borrower and the individual owners are Guarantors, just like a typically commercial loan. The lender is focused on the Debt Service Coverage of the property rather than the individual’s incomes. They look at the market rents divided by the payments with taxes and insurance included and depending on the ratio, the rate will be decided accordingly. In addition, they also look at all of the guarantor’s credit scores to also decide on a rate.

Advantages:

• Lower interest rates than the other options but fixed for shorter time.
• Interest Only is sometimes offered depending on the need.
• Loan not reported on owner’s/guarantor’s individual credit reports.
• Typically don’t require escrows for taxes & insurance.
• Depending on the lender, most types of properties may qualify including mixed-use, multi-unit with no specific limit, condotels (Depends on the lender), and non-warrantable condos.

Disadvantages:

• Shorter Fixed Rates (Typically a 5, 7, or 10 yr. fixed rate)
• Shorter Amortizations (Typically up to 20-25 years)
• Lender may require a deposit relationship
• Qualify based on full package of 3 yrs. tax returns, personal financial statements, property income information.
• May or may not have a prepayment penalty.
• May require a large down payment depending on the property’s DSCR which is calculated differently from the Non-QM Lenders.