July 18, 2024 • 38 mins
In this episode of Loan Officer Training, we explore the art of structuring loans using guidelines effectively. Guidelines play a crucial role in ensuring loans meet regulatory requirements and borrower qualifications.
Join us as we break down the steps to leverage guidelines to your advantage. We discuss how to interpret and apply loan guidelines to match borrower profiles with suitable loan products. Our expert hosts share practical tips on navigating complex guidelines, optimizing loan structures, and mitigating risks.
Whether you're a seasoned loan officer or new to the field, understanding how to use guidelines strategically can enhance your ability to tailor loans that meet both borrower needs and lender criteria. Tune in to gain valuable insights and elevate your loan structuring proficiency in today's competitive market.
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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Comm
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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jul 18, 2 (00:00):
So welcome everyone.
(00:01):
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president, Nick Hiersche and oursales manager, Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every week.
Tuesday, Wednesday and Thursdayevening at 7 PM.
Eastern on this show is an indepth training topic for loan
officers.
Tonight's topic is going to bevery basic, but very fundamental
(00:22):
and important, which is how tostructure loans using
guidelines.
So, this is what Jose preachesto our team every day.
So, Jose, I'll let you go aheadand get into the presentation.
All right.
How is everybody doing tonight?
(00:43):
Thank you for joining for.
Yes, absolutely.
Carl, you have it right.
Guidelines, guidelines,guidelines.
I love guidelines.
I mean, obviously one of my,initial job when I joined the
financial industry was as a bankauditor.
So you know how that goesregarding guidelines and
policies and procedures.
(01:05):
So in this, training here, we'regoing to break it down, not so
much individual optionguidelines, but more stressing,
What is the thought process,and, how can you apply that to
being able to properly assessyour loan, properly assess the
(01:25):
whole scenario.
In a nutshell, how, you know, tobe the best and most effective
and efficient loan consultant.
In the end, we want to make surewe do the best job for our
borrower to reach that objectivein the most efficient, manner
for the borrower, which isusually going to me mean a
headache free transaction withthe lowest cost option that was
(01:49):
possible to meet theirobjective.
And by lowest cost option, notnecessarily Talking about, you
know, your rate compared tosomebody else's rate.
I'm talking about the lowestcost option.
Like as an example, today, Ihelped one of our MLOs structure
a deal.
They came into our, my lifesupport zoom room that I'm in,
for the team.
(02:09):
And, they were trying to figureout, a borrower that was, self
employed with a borrower thathas W 2.
And they're trying to put a thisinvestment property loan at an
80 percent loan to valueconventional, right?
To the point that they have herwith no income because the
prior, some prior attemptcouldn't, you know, someone else
(02:33):
had denied that loan and theyhad tried to force it not
through the mortgage calculator.
Of course, they had tried toforce it square peg through a
round hole, as I like to say.
And what ended up happening isit got denied.
Luckily, now we're in thepicture helping him out.
And luckily for them, I wasthere helping them structure the
deal, the borrower's deal,because, When we analyze what
(02:54):
was really there, you werelooking at a conventional loan
at an 80 percent loan to valueinvestment.
This is with a high credit scorealso, but the cost was like 3.
8 points for the lowest costoption at an 80 percent because
the agency loans are reallyputting a high loan level price
adjustment on agents oninvestment property loans and
(03:15):
second homes.
So.
We're looking at that.
I'm looking at that.
Plus we're looking at the factthat this borrower who's now
subemployed for at least oneyear can't really, you know, has
having issues trying to getapproved full doc agency, but we
had the bank statement.
And W 2 combined loan, where theborrower can have both loan
(03:39):
incomes, streams, or in thiscase, the borrower, we can now
do that loan with the mainborrower's bank statement, the
one that didn't get approvedfull doc.
And the co borrower who stillmakes excellent income is now W
2.
No, 45 was, I mean, no, taxreturn needed from anybody, just
a W 2 transcript from the W 2borrower and the 12 month bank
(04:03):
statements from the bankstatement borrower, verification
letter from their tax preparer,preferably.
And a lot of explanation for thefact that they're continuing a
previous operation that theywere as a W 2 employee, now it's
a self employed borrower.
That's a slam dunk.
And, the best part of thatscenario is that, the interest
(04:25):
rate is lower than theconvention alone at 80%.
And the cost was alsoconsiderably lower for the non
QM loan, when we werestructuring like that as the
deal that's going to close, asopposed to trying to force the
square peg through around.
So that's just a little,anecdote of what happened today.
(04:48):
And what we're talking about,because if you come with a
preconceived notion that theagency loan is always better,
not necessarily the case all thetime, right?
That's why you need to properlyassess the full transaction.
So, first a little bit about themindset.
Right mindset here.
Determining the correct path isthe key, right?
(05:09):
You want to make sure that loangets off on the correct
trajectory.
Why?
Because there's loanconsultants, right?
That's what we strive to be.
That's what we train everybodyto be at the Mortgage
Calculator, loan consultants.
We need to gather the neededdata, right?
So we can provide the borrowerwith the most accurate
assessment of their loan, and tobe able to meet that objective
(05:32):
like I was talking about in themost cost effective manner for
the borrower.
So I just mentioned the anecdoteabout what just happened today.
Where we got that loan and justtotally shifted it non QM that
loan and next thing you know,the borrower is saving 50
percent off of the loan discountfee and at a lower interest rate
to boot mind you, the non QMloan has a three year prepay
(05:56):
compared to the agency loan, butI mean, you know, the agency
loan was not going to be doableat a cost of like four points.
And they're going to have tocome in with 25 percent down
instead of 20 percent down forthe document.
So again, correct trajectoryregarding wanting to be loan
consultants.
You build credibility, right?
(06:16):
And that's, and the end resultwe want to meet, obviously meet
or exceed our borrower'sexpectations, right?
Delight them with our service.
Conversely, starting on anincorrect trajectory.
I mean, you're at risk ofdelaying closing, not closing at
all, or, or you close at theend, finally, after a marathon
(06:38):
session and the borrower'supset, never gonna refer you a
deal.
That's not, that's one and done.
That's not how you havelongevity.
And most importantly,sustainability in your loan
officer career.
So talking about correct path,then we're obviously going to be
(06:59):
considering agency or non QM,right?
Agency.
What do I mean by agency?
Well, agency loans, FHA, FannieMae, USDA, VA.
Those are the agencies becausethe loans are sold through GSEs.
Which are pseudo governmentalagencies, some of them more
governmental than others, likeGinnie Mae, right?
Ginnie Mae that buys FHA and VA,as opposed to Fannie Mae, which
(07:24):
is conventional loans only, andFreddie Mac that are
conventional loans only.
The main thing about agency ishomogeneous guideline.
Also, AUS.
Or GUS, G U S, for USDA loan,which dictates documents
required, as well as LTV, DTI,and credit score limits, because
(07:47):
you, some of the options of theagency options have manual
underwriting.
Conventional does not.
The others do.
But at that point, Conventional,the, manual underwriting has
usually much more restrictiverequirements.
LTVs, as opposed and much morerestrictive credit scores, as
opposed to when you get theapproval via automated
(08:07):
underwriting, then it's, younever know what's going to
happen.
You may be surprised, you know,getting that five 50 or that
five 20 score FHA borrower withonly 20 percent down approved
through DU, right?
Not having to go manualunderwrite.
That means you have a 56.
9.
DTI possibility as opposed to43%.
So a lot of considerations,obviously, determining the
(08:27):
correct path.
If you're going to go non QM,and these are points we're going
to, you know, we're going toexpand on now, next following
slides is, Each investor, andthis is key, each investor has
guidelines specific to theirorganization and secondary
market needs.
And what I mean by investor hereis not the investors you are
(08:48):
financing, but the investorsthat purchased the loans that we
originate, right?
We don't keep these loans.
We sell these loans, tosecondary market through
different conduits.
So each of those conduits hasSpecific guidelines to the
package that they're trying toput together.
That's the cool thing about nonQM.
(09:10):
Now, obviously there's a, dryingup of credit all of a sudden of
liquidity.
Then at that point, the agenciesmay have a little edge there
because if the funding dries upfor non QM and secondary,
there's no money to lend.
It's not like Fannie Mae,Freddie Mac, and Ginny Mae
that's going to be there.
They'll tighten up like they didduring the pandemic, but they'll
(09:32):
be there.
And then a real important noteabout non QM, especially all our
new MLOs out there, you're nevergoing to have to run DU on a non
QM program, right?
Especially DSER.
I actually had that happen.
Because they are all manuallyunderwritten.
You pick the program that youwant to submit to.
(09:55):
For review, right?
So no, no worries about, whatmay happen to a U S because it
is all manual.
And that's the beauty of non QM.
You are the filter, right?
You are the DU now breaking itdown a little bit here.
When we're talking about agency,agency guidelines only vary due
to investor or lender overlays,right?
(10:19):
That's a critical.
component there.
Now, you see that I put there,the different URLs for Fannie
Mae Selling Guide, Freddie MacSelling Guide, VA Guidelines,
FHA Guidelines, and USDAGuidelines.
Those are the raw guidelines,all encompassing.
And then from there, what youhave to worry about, or review,
(10:39):
should I say, actually, worry ifall of a sudden you get hit with
this as an underwritingcondition.
And here's what we're trying toprevent, right?
We're trying to prevent youstruggling at the end because
you were proactive.
And reviewing these things atthis point, you have to check
the, lender overlays to see whatthey may be for that particular
lender.
That's reviewing, the loan andseeing if it's going to be
(11:01):
approved, right?
So that's, that's the situationon that.
But that's a critical componentbecause now if you are
submitting something, forexample, to FHA.
FHA, let's say, doesn't have acredit score, minimum credit
score requirement, but thelenders will at that point.
Some will go as low as 500.
Some with the du, if it gives itto you, they'll take it.
(11:22):
Others say five 50, others sayfive 80.
Others say 600, 6 20.
It's, it's whatever they want itto say in that respect.
That's an overlay on the loansthat they want to purchase, not
a guideline change at theuniversal level.
Let's talk, let's put it thatway, right.
So, that's really important andthat's why I reiterate here,
(11:43):
note that AUS has higher DTIlimits credit scores than manual
underwrite.
And again, conventional loans,Fannie and Freddie, do not have
manual underwriting optionsusually that we can benefit
from.
So, now non QM guidelines, likeI mentioned are investor
(12:06):
specific.
So what I'm going to show youhere, these two examples, I'm
not going to break down anyserious guidelines here because
there's so many differentscenarios.
Remember, this is about themindset and the following
slides, we're going to break itdown a lot more about, you know,
Specific considerations to giveyou a pointers, the main stuff
that can really get you stuck.
(12:28):
The main thing I'm showing herein this slide and the next slide
is going to be just how the sameexact program covering the same
exact component.
And here I'm, I'm basicallybreaking down one of the hottest
segments of the market was ashort term rental DSCR loans and
(12:49):
how to use that short termrental income on your DSCR loan.
In a manner that's not going toget you hit with LTV reductions
and the like, and, or just tellyou at the end, they can't even
use it for whatever reason.
So, because as I mentioned,guidelines are investor
specific, not product specific.
And I have this happen all thetime.
(13:09):
Avalos emailing, Hey, on a, on ajumbo loan.
Can we do such and such thingwith a gift?
Well, okay, which jumbo loan arewe talking?
Prime jumbo, conform, conformingconventional type jumbo, right?
Or are we talking about a non QMloan that's above conforming
loan limits?
So, in this example here, Right.
(13:30):
As we re review it, excuse me.
You'll note one of the importanthighlights is that a lease
agreement is not required oneven on a refinanced property.
They don't ask you for a lease.
They'll use the 1007, which isthe schedule of market rent, or
they'll use the lease agreement.
If you're trying to get a higherrent than the 1007 rent, then
(13:53):
they'll accept it.
Usually with some considerationsproviding three months of
payments and all that kind ofstuff.
No, they'll let you use shortterm rentals and they apply a 25
percent haircut to the shortterm rental income.
They let you use air D.
N.
A.
and they'll use the 12 monthaverage or 10 oh seven.
(14:15):
If the 10 oh seven is reflectedas a short term rental 10 oh
seven.
So if no actual rent, then theyuse 75 percent of the short
rental, short term rental incomeindicators like AirDNA, right?
So that's, that's, that's thatone there.
Then example number two, again,this is, short term rental
(14:38):
income.
And first you have to know thedifference in how the DSA income
is calculated.
This option requires a lease ifusing long term rental.
What that means is that, and Istop here to stress this because
I've actually seen, deals fallapart because of this.
If you are using short termrental income, I mean, long term
(14:59):
rental income to qualify theproperty, because.
It qualifies the property.
No need to use a short termrental income.
That's, the, that's like anaphrodisiac right of the
investors.
Then, you would want to go tothe option that, that, this
guideline pertains to right.
10 0 7 or lease.
(15:20):
And again, 10 0 7 or short termrental agreement, depending what
you're using.
But again, if you don't code itas short term rental.
It's right here, 1007.
At that point, it could be shortterm rental, but it could be
fully furnished.
Maybe the appraiser marks itvacant on the appraisal, but
it's not vacant, because that'swhat they do with properties
that don't have a lease, right?
(15:41):
If you don't provide them alease, even though it's
furnished, they're going to putvacant, usually on the
appraisal.
And at that point, which one hasan issue with a quote unquote
vacant property on a, on a refi?
Most don't, some do.
Right.
So that's what you got to lookat.
Are they going to ask me for alease or not?
This option right here, no leaserequired, you know, they're,
they're not going to have anyissue there.
No, no reductions or anythinglike that.
(16:04):
However, this one here, lets youuse the air DNA on a cash on a
refi.
The property was just put intoservice, right.
And then season rental.
So maybe you didn't use AirDNAfor the, for the purchase, but
now you can use it when it's,you know, for the purpose of
whatever you need to qualifynow.
(16:24):
So different options on how todo that, but definitely
differences.
For example, this one here, Ithink it has a different kind of
a, of a haircut.
On the short term rental income,or it may depend on the vacancy
factor.
Okay.
No, check this out.
(16:44):
Now a 40 percent vacancy factormust be applied to the short
term rental income from thecomparable rent schedule.
So, if occupancy rate is 60%, soit really depends how the
appraiser.
Narrates the 1007.
So, you know, a lot of differentvariables to consider.
The other one across the boardsays 25%.
So here you just want an extranarrative from the appraiser.
(17:07):
So that's what we're really, youknow, showing you the minutiae
here of breaking down theguidelines and how just missing
one point of the guidelinesthere could cause you to get off
trajectory.
And now all of a sudden befacing an uphill battle where
you're at.
Now, I don't got time to switchprograms.
And now I gotta be asking forexceptions.
(17:28):
Is the exception going to costmoney?
Is the exception going to reducethe LTV?
So, you know, a lot of, a lot ofthings to consider.
And again, this one requires alease if using long term rent,
that's the big scenario, whereasthe other one you can qualify
using long term rent.
If it qualifies, easy peasy,because they don't require a
lease.
(17:50):
So now, you, now you saw themindset, right?
And how important it is to breakit down like that, how important
it is to realize that allprograms in Non QM have
different guidelines, they'reall different.
Don't generalize anything.
You're leaving money on thetable if you generalize, and if
you don't just decide that, hey,I gotta embark.
On the mission.
(18:11):
These are my three, four or fiveoptions rate wise that I like.
Now, let me start looking at theguidelines for these five
options and let me see which isthe best one, because you may
uncover while reading thoseguidelines, that some of those
scenarios pertain to yourborrower and now all of a
sudden, save your loan.
So now we're talking about theimportance.
(18:32):
Now here is we're being the loanconsultant, really comes into
play, right, properly assessingall the transaction details, you
know, borrower details.
I guess we would want to put itthere right.
Now first more transactionrelated here.
Is it a purchase or is it arefinance right now?
Both have seasoningrequirements.
(18:53):
Don't think seasoningrequirements are just an issue
for cash out refines.
Seasoning requirements are a bigtime issue for it for a DSCR
purchase because if you'rebuying, if your borrower is
buying a property that's arecent flip, Recent could be 30
days, you know, within the last90 days or 90 to 180, 180 to
(19:14):
360, they have differentcategories.
Each category has differentrequirements depending on the
capital appreciation on theresale, right?
Wow.
You're like, wait a minute.
I didn't realize it on apurchase.
We were going to have to worryof the properties of flip or
else or maybe LTV reductions andso forth and so on, or, or a
second appraisal requirements.
Yeah.
Off the bat automatic, right?
(19:36):
So no, no, that situation, 90,the 90 day flipping rule for FHA
loans.
That's a purchase requirement.
That's not a refi requirement.
That's a, if your borrower isbuying a property from a
rehabber and they're buying itwith an FHA loan, and the
rehabber has been on title forless than 90 days, they cannot
get into a contract.
(19:58):
On that property, the sellercannot enter into a contract on
an FHA loan until the 91st day.
That's the FHA 90 day flippingrule.
So it has nothing to do with acash out refinance on a
purchase.
More than one deal has beenstung by that one there on a
purchase.
Again, now the easy one everyoneknows about is cash out
refinance using appraised valueversus purchase price plus
(20:19):
renovations.
When the property has less thanX number of months of seasoning,
right?
So we have 30, we have zeromonths seasoning.
available, 6 month seasoning, 12month seasoning.
So, it really depends.
Every deal is, a specific deal.
So, on the DSCR, we have 0 monthseasoning.
On a DSCR, you've done somelight rehab to the property
(20:43):
after purchase.
and improved it, they'll giveyou the market value, but you're
going to have done some rehab.
That that's the main catch now,on the no seasoning DSR options.
We used to have a lot of pure,no seasoning DSR options, but
now they've tightened up that ingiving us lower rates.
You know, they give it, thenthey take it, right.
They've given us much lowerrates on some cases.
They've tightened a few thingsup.
(21:04):
One of the, I think the onething that's been tightened up
has been the, seasoningrequirement, but we can still do
it.
No much seasoning.
Is there a CDA or a secondappraisal requirement on a
purchase for refinance?
That's another big one.
and again, that would depend ona lot of things.
Read the guidelines.
If it's a flip, if it's, is, isone of the big ones.
(21:25):
Or just see you score over 2.
5.
Another reason possibly to haveto get a CDA.
So a lot, a lot of differentthings, going on with that
property type.
That's that's a big right?
Is a rural again.
We have rural options for DSCR,for example.
And we have a rural options forprimary, you know, and I'm not
(21:48):
just talking about USDA or someproducts we have for like hobby
farms, gentlemen farms and stufflike that, for, for producing
farms for actual farms.
And, you know, at DSCR, we haverural options may have, some
additional restrictions toconsider.
(22:08):
Like the comps need to be acertain distance from the
subject and all that kind ofstuff, but that may be doable.
Does it have an ADU?
Is it one ADU or two ADUs?
At that point, are two ADUsallowed?
I just saw a deal fall throughbecause they had a two ADUs on a
property.
Normally municipalities, let youdo one legally, doing more than
(22:29):
one, or you may have theguidelines because of them.
They know how the municipalitiesare.
It's supposed to be a main andwhen it's a single family
zoning, you'll see theguidelines normally won't accept
a second ADU.
Now there may be one out there,I'm not saying there aren't, but
normally they don't, so yougotta then scour the guidelines
and look for that option.
(22:49):
Is it a non warrantable condo?
When it is, you're talking aboutnormally something having to do
with the budget or the finances,right?
No reserves, that's the big one,or not enough reserves, don't
meet the minimum requirement.
Non QM in some cases goes as lowas five percent.
And I'm not talking about a nonwarrantable, and in some cases
we have options where they don'teven check the budget, they just
(23:11):
check the percentage.
Of, residents that are 15percent or more delinquent
that's on a regular condo loan,non QM condo loan for some of
our options that we have.
So again, you got to read theguidelines.
They're all different, but theissues that bring up the item,
bring up issues is the budget,financial matters, and the
percentage of investor, versusowners.
(23:34):
In other words, the rental unitsversus owner occupied units in
the building.
It's another reason that canmake something non warrantable.
Property condition issues isanother big one.
Let me tell you what, it's notthe first time that we've
received the email from theappraiser.
They go out to the property andthey're like, hey, what do you
want me to do here?
Do you want me to do thisappraisal subject to, or do you
(23:55):
want to call me back?
Because basically this propertyis under renovation.
There's no kitchen cabinets,there's no vanities, there's no
toilets, showers underconstruction.
So then at that point, MLOreaches out to the borrower,
borrower is like, Hey, I, I wasgoing to use the money to, you
know, complete the repairs.
I didn't know that was going tobe a problem.
(24:18):
That being said, we do haveprograms for that kind of
scenario.
Renovation loans.
We have some loans that onlyrequire an AVM.
If the LTV is low enough, thereis no interior property
inspection, right?
So at that point, just to note,I mean, it's not going to be an
FHA loan unless it's an FHA 203kloan, which is a renovation
(24:38):
loan.
That's a different story, right?
Or unless it's a conventionalrenovation loan or it's an
investment property.
We do have investment renovationloans.
Conventional for one unitproperties.
And then we do have our fixedflip loans that we discussed
recently that are for the, thetrue investment proper.
Investors with no, prepaymentpenalties and no early payoff,
default penalties either.
(25:01):
So that's, that's a big onethere that you, consideration to
discuss with the borrower.
Right?
Gotta ask that.
A lot of people don't ask thatand they get burned, and then
the, the more obvious right, thecredit.
What's your score?
Trade lines, you know, or onceyou have the credit report,
analyze what are the trade linerequirements.
Normally, at this point, wealready have.
(25:23):
The, the, the data creditreports.
And then now we are reconcilingtwo guidelines.
And a DU does that for usautomatically, but, you know, in
a, should I say, a U S and, andG U S that's for USDA loans does
it automatically for us, but innon QM, remember we are the, a U
S so we're the ones that got,you know, put our nose in the
(25:44):
grinder, review those guidelinesand make sure that, for example,
in some scenarios where you, ifyou have three credit scores,
you know, Some of our, of ourloan options do not, review the
number of trade lines oranything.
The, there's no open trade linerequirements or anything like
that.
If you have the three scores,the, that underwriting model
considers that your creditshould be good and there should
(26:05):
be something there that thosethree scores are there.
And then we're going to look atthe middle score and that's how
that's done.
And other importantconsideration, housing payment
history.
There, we're talking about, doyou have a primary as in a loan
on a primary residence that youown?
Are you paying rent or are youliving rent free or do you have
(26:25):
a primary with no mortgage onit?
Well, on that primary with nomortgage, you're going to pay
taxes, maybe insurance, sothey're going to have you
document the tax payment as yourproof of timely housing payment
in most cases.
And, the no rent scenario couldbe a little bit more difficult,
to overcome.
In some of these cases.
(26:45):
So that's one of the things thatyou have to consider.
Is it a true first timehomebuyer, first time investor
program where you're living rentfree, or do they need to
document for that scenario?
First time homebuyer, first timeinvestor.
It's some rent being paid.
Right.
So those are points to consider.
They're super important,especially on the, non QM and
DSCR, loans.
(27:05):
And even on, believe it or not,one that just came to mind right
now, conventional investmentproperty loans, did you know
that if you are financing aconventional investment property
loans and the borrower does nothave a primary housing expense
of any type, you're not going tobe able to use the 75%.
(27:27):
Unseasoned rental income at thatpoint that zeroed out because
you need to have some type of aprimary housing expense for for
agency loans conventional to letyou use 75 percent of the
unseasoned rental income.
Some of you are probably sayingwhat I didn't know that.
(27:47):
Yep, that one can bite you.
You know where and then ofcourse credit events.
BK's foreclosures collectionsand charge offs.
Now don't be dismayed.
We have options for peoplecurrently in a BK for at least
one year at chapter 13.
We have options for people justout of a BK non QM.
We have options for people oneyear out of foreclosure non QM.
(28:11):
We have options that you don'thave to pay off the charge offs
as long as you can showreserves.
So many different scenarios,just properly analyze a credit
event and properly reconcile itand don't leave any stone
unturned because obviously ifit's a U S a U S is going to
tell you if those charges aregoing to be paid off or not, had
those investment property loansthat they had 50, 000 in charge
(28:34):
offs.
They didn't want to pay it off.
And on the purchase, well, notinvestment property, primary
purchase.
And, but they gave a nice downpayment and they were able to
leave those 50, 000 in chargeoffs unpaid.
same borrower though.
We turned around and did it nonQ, did an investment, ran
agency, loan approval, causeit's for different property.
(28:57):
They bought two properties, aprimary refinance, a primary, or
something like that, or bought aprimary, bought an investment,
but on one side, the primary,obviously less risk in the
algorithm, didn't have to paythe charge off.
The investment more risk in thealgorithm has to pay the charge
off.
So then we pivoted to non QM didthe transaction non QM through
(29:17):
one of the non QM options thatall you had to do was show
reserves didn't have to payanything off either, but see,
that's the beauty of properlyanalyzing the guidelines.
Knowing the objective andfinding the lowest cost option
for the borrower of those tomeet their objective.
And then, other borrower detailsto consider, right?
(29:38):
Now we're talking about borrowerresidency.
Where are they from?
That's going to affect the loantype, LTVs.
Documentation requirements.
did you know that in a fournational, DSCR loan, there's no
first time investor buyerconsideration at all.
And we have options where theydon't even have to verify any
primary housing expense in theircountry of origin.
That's all really importantstuff.
(29:59):
Income borrower income.
We've had all these trainingslately, right?
Are they salaried hourly?
Is there variable income, right?
Overtime bonus commission tips.
Are there income gaps?
Because, you know, if it's morethan 30 days.
They're gonna usually have toprovide an LOE and possible
additional docs to document whatthey were doing if it's a large
gap like six months.
(30:21):
If they're self employed, twoyears plus.
Is usually required for mostprograms, but big, but we have
many options that will acceptonly one year.
I'm doing the loan.
I just, the anecdote I justmentioned, at the beginning here
was the one year bank statement,one year in business, by doing
that, that type of, duties intheir profession for many years,
(30:44):
full doc or all doc bankstatement, profit and loss.
And then our very favorite rightDSCR, but even on DSCR loans,
but like I mentioned earlier,FHA loans, there's borrower and
seller seasoning untitled isreally tight.
On those DSCR loans, you have toreally be on point, but, but
(31:04):
fear not.
Like I mentioned, we have zeromonth seasoning options as well
as six and 12 month options thatare available.
And then assets, right?
You know, this is, this is ourlast slide here.
Assets.
Moat, very important.
Seasoning considerations, 30,Zero 30 or 60 days.
Look at the guidelines and seewhat they require.
(31:25):
This is going to be the same onyour, a U S a U S is going to
tell you, you need one monthbank statement or two months
bank statements, or no reserves,no bank statement need to be
required provided, or maybe noreserves that's usually on your
refinance transactions that are,uh, they may not require.
It's a very strong borrower.
Now, sourcing of the deposit ofthe assets.
(31:45):
Still may be required even ifseasoning is not required
because you got to show wherethe money came from.
Can't just show up with a bag ofcash.
definitely not, it's not in theFinCEN states like, the areas
like, South Florida, right?
Anything over a million dollars,they're going to be, if it's a
million dollars or more and cashwas used in the transaction,
they are bringing out themagnifying glasses.
(32:09):
For those transactions, giftsnow gifts, you know, relatives,
but they can also be from aclose personal friend.
You got to review the guidelinesand see which allow that.
And then is it individual toindividual gifts?
Because, in most cases it can'tbe, LLC to an individual or
individual to an LLC has to beperson to person.
(32:32):
And then reserves be aware.
Again, a U S is easy.
Reserves are going to be,underwriting, on the findings,
right?
But in non QM, there's going tobe a matrix or matrices more
than one with the differentreserve requirements.
And then a lot of differentconsiderations.
Some is just three months on thesubject property and six months
(32:54):
on certain LTVs or below certaincredit scores.
And that's it.
Others are going to hit you perproperty, three months up to a
limit of.
18 months or something likethat.
And so that can be, you know, ahefty sum of money and something
and definitely a structurecomponent that can make or break
your loan.
And then last but not least, onethat gets missed, liquidity
(33:18):
consideration when consideringan asset.
What do I mean by that?
Well, some assets are moreliquid than others.
So checking account, savingaccount, money market, that's a
pure liquid asset.
That's 100 percent of your, ofthe value you're going to
receive, but in some cases youmay not receive 100 percent for
a 401k and IRA or otherretirement accounts.
(33:38):
You may only receive 70 percentor 60%.
Now there may be cases where youdo get that 100%, but you've got
to review all the guidelines toknow, and those will be in non
QM basically, where you may finda more flexible options on the
liquidity consideration on theassets that you're paying for.
So a lot of things that wecovered today.
Real good stuff though.
(33:59):
I know that that's going to bestuff that's going to benefit
everyone that's watching thisand everyone that's going to
watch the replay.
I mean, a lot of these are aroad map to, you know, not
getting stuck on your loan andtrying to close on that.
I have loan officers ask me allthe time.
You know, I'm looking at thisloan transaction and can can
such and such loan submission tosuch and such investor closing,
(34:23):
you know, X number of days.
you know, because, you know, weworry about underwriting
turnaround time as being afactor, right?
But, but then what we really, myreply to them is always, well,
Let's see, we go to the portal,maybe that maybe that investor
is advertising theirunderwriting turnaround time.
Maybe for submissions is 1 day,maybe 3 days.
(34:45):
Maybe we've just had experiencepersonally.
And a lot of these were gettingsame day submissions actually.
And what and 24 submissions or,you know, we can relay a
personal experience recently onsubmissions.
This is what we've had.
But at the same time, then I'm,I'm telling them, listen, then,
you know, the other componentshere is MLO proficiency, right?
(35:05):
That's a really big one.
That one is probably more of afactor than underwriting
turnaround time.
If you're turning incompletefiles, right, turning in
complete files, not incompletefiles, want to make sure it's
not, uh, misheard.
If you are turning in completefiles, then underwriting turn
(35:27):
time should be minimal.
You should only have problemswith multiple underwriting turn
times if you just keep kickingthe file back for resubmission
multiple times.
Because you're just piecemealingit, or just, you know, whatever
you may be doing.
And then they're obviously goingto take a long time on your
file, especially the third orfourth time that it comes for
review.
They're like, Oh no, not thisMLO's file again.
(35:48):
Right?
So real important, that, thatpart there, and especially so
that you can get all your filesreviewed and close your logs
ASAP.
All right.
Thank you, Jose.
Let's see here.
Go ahead and drop any questionsif you have them there in the
(36:09):
chat.
It looks like we have a questionhere.
I'm not sure if I understand thequestion here.
How can someone clear a partnersavings plan?
I'm not really sure what is, Iguess I'd have to look up if a
partner savings plan hasspecific restrictions in the
guidelines.
I've never really seen thatbefore.
Reviewed a partner savings plan,but just know that it sounds
(36:32):
like something that may have alittle bit less liquidity than a
regular savings plan.
So you just have to see thenwhat category it falls under.
And if you have to adjust it nowand asking how to clear, there's
also other considerations tothat question, which would be
terms and conditions of thewithdrawal, right?
(36:53):
Are there any restrictions onthe withdrawal type?
Are you able to withdraw thatmoney for anything you need with
a penalty for anything you needwithout a penalty only under
certain conditions only underhardship?
Not for anything until you're65.
I mean, at all, at all, at all.
So those, those are the factorsthat to be considered.
If you're going to use thatasset, for example, as reserves,
(37:13):
instead of use that asset as anasset, if you're going to use it
as an asset at that point forthe transaction, then you're
going to get credited forwhatever it withdrawn from that
account and deposited into yoursaving into your checking
account or savings, wherever youdeposited to close the loan.
That's what that boils down to.
So if you're actually drawingthe money out.
(37:33):
That's just the documentation,right?
Provide the last, two months orthree months or one month,
whatever they ask you and theapproval in the guidelines,
showing the, where the money wasat, show the transaction of the
money, leaving that account andgoing into the account that's
going to close.
And that would take care of anysourcing requirement.
(37:55):
And then the seasoningrequirement, like I just
mentioned, according to theguidelines, they want one or two
months backstage.
All right.
I do not see any otherquestions, so I think we can go
ahead and wrap it up.
But this was a great 1 here.
Remember, we do this at 7 PM.
Eastern time on Tuesdays,Wednesdays and Thursday evenings
(38:16):
with a new loan officer trainingtopic.
So, the next time we will see,you all will be next Tuesday, 7
PM Eastern for the next episodeof the loan officer training
series.
So welcome everyone.
(00:01):
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president, Nick Hiersche and oursales manager, Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every week.
Tuesday, Wednesday and Thursdayevening at 7 PM.
Eastern on this show is an indepth training topic for loan
officers.
Tonight's topic is going to bevery basic, but very fundamental
(00:22):
and important, which is how tostructure loans using
guidelines.
So, this is what Jose preachesto our team every day.
So, Jose, I'll let you go aheadand get into the presentation.
All right.
How is everybody doing tonight?
(00:43):
Thank you for joining for.
Yes, absolutely.
Carl, you have it right.
Guidelines, guidelines,guidelines.
I love guidelines.
I mean, obviously one of my,initial job when I joined the
financial industry was as a bankauditor.
So you know how that goesregarding guidelines and
policies and procedures.
(01:05):
So in this, training here, we'regoing to break it down, not so
much individual optionguidelines, but more stressing,
What is the thought process,and, how can you apply that to
being able to properly assessyour loan, properly assess the
(01:25):
whole scenario.
In a nutshell, how, you know, tobe the best and most effective
and efficient loan consultant.
In the end, we want to make surewe do the best job for our
borrower to reach that objectivein the most efficient, manner
for the borrower, which isusually going to me mean a
headache free transaction withthe lowest cost option that was
(01:49):
possible to meet theirobjective.
And by lowest cost option, notnecessarily Talking about, you
know, your rate compared tosomebody else's rate.
I'm talking about the lowestcost option.
Like as an example, today, Ihelped one of our MLOs structure
a deal.
They came into our, my lifesupport zoom room that I'm in,
for the team.
(02:09):
And, they were trying to figureout, a borrower that was, self
employed with a borrower thathas W 2.
And they're trying to put a thisinvestment property loan at an
80 percent loan to valueconventional, right?
To the point that they have herwith no income because the
prior, some prior attemptcouldn't, you know, someone else
(02:33):
had denied that loan and theyhad tried to force it not
through the mortgage calculator.
Of course, they had tried toforce it square peg through a
round hole, as I like to say.
And what ended up happening isit got denied.
Luckily, now we're in thepicture helping him out.
And luckily for them, I wasthere helping them structure the
deal, the borrower's deal,because, When we analyze what
(02:54):
was really there, you werelooking at a conventional loan
at an 80 percent loan to valueinvestment.
This is with a high credit scorealso, but the cost was like 3.
8 points for the lowest costoption at an 80 percent because
the agency loans are reallyputting a high loan level price
adjustment on agents oninvestment property loans and
(03:15):
second homes.
So.
We're looking at that.
I'm looking at that.
Plus we're looking at the factthat this borrower who's now
subemployed for at least oneyear can't really, you know, has
having issues trying to getapproved full doc agency, but we
had the bank statement.
And W 2 combined loan, where theborrower can have both loan
(03:39):
incomes, streams, or in thiscase, the borrower, we can now
do that loan with the mainborrower's bank statement, the
one that didn't get approvedfull doc.
And the co borrower who stillmakes excellent income is now W
2.
No, 45 was, I mean, no, taxreturn needed from anybody, just
a W 2 transcript from the W 2borrower and the 12 month bank
(04:03):
statements from the bankstatement borrower, verification
letter from their tax preparer,preferably.
And a lot of explanation for thefact that they're continuing a
previous operation that theywere as a W 2 employee, now it's
a self employed borrower.
That's a slam dunk.
And, the best part of thatscenario is that, the interest
(04:25):
rate is lower than theconvention alone at 80%.
And the cost was alsoconsiderably lower for the non
QM loan, when we werestructuring like that as the
deal that's going to close, asopposed to trying to force the
square peg through around.
So that's just a little,anecdote of what happened today.
(04:48):
And what we're talking about,because if you come with a
preconceived notion that theagency loan is always better,
not necessarily the case all thetime, right?
That's why you need to properlyassess the full transaction.
So, first a little bit about themindset.
Right mindset here.
Determining the correct path isthe key, right?
(05:09):
You want to make sure that loangets off on the correct
trajectory.
Why?
Because there's loanconsultants, right?
That's what we strive to be.
That's what we train everybodyto be at the Mortgage
Calculator, loan consultants.
We need to gather the neededdata, right?
So we can provide the borrowerwith the most accurate
assessment of their loan, and tobe able to meet that objective
(05:32):
like I was talking about in themost cost effective manner for
the borrower.
So I just mentioned the anecdoteabout what just happened today.
Where we got that loan and justtotally shifted it non QM that
loan and next thing you know,the borrower is saving 50
percent off of the loan discountfee and at a lower interest rate
to boot mind you, the non QMloan has a three year prepay
(05:56):
compared to the agency loan, butI mean, you know, the agency
loan was not going to be doableat a cost of like four points.
And they're going to have tocome in with 25 percent down
instead of 20 percent down forthe document.
So again, correct trajectoryregarding wanting to be loan
consultants.
You build credibility, right?
(06:16):
And that's, and the end resultwe want to meet, obviously meet
or exceed our borrower'sexpectations, right?
Delight them with our service.
Conversely, starting on anincorrect trajectory.
I mean, you're at risk ofdelaying closing, not closing at
all, or, or you close at theend, finally, after a marathon
(06:38):
session and the borrower'supset, never gonna refer you a
deal.
That's not, that's one and done.
That's not how you havelongevity.
And most importantly,sustainability in your loan
officer career.
So talking about correct path,then we're obviously going to be
(06:59):
considering agency or non QM,right?
Agency.
What do I mean by agency?
Well, agency loans, FHA, FannieMae, USDA, VA.
Those are the agencies becausethe loans are sold through GSEs.
Which are pseudo governmentalagencies, some of them more
governmental than others, likeGinnie Mae, right?
Ginnie Mae that buys FHA and VA,as opposed to Fannie Mae, which
(07:24):
is conventional loans only, andFreddie Mac that are
conventional loans only.
The main thing about agency ishomogeneous guideline.
Also, AUS.
Or GUS, G U S, for USDA loan,which dictates documents
required, as well as LTV, DTI,and credit score limits, because
(07:47):
you, some of the options of theagency options have manual
underwriting.
Conventional does not.
The others do.
But at that point, Conventional,the, manual underwriting has
usually much more restrictiverequirements.
LTVs, as opposed and much morerestrictive credit scores, as
opposed to when you get theapproval via automated
(08:07):
underwriting, then it's, younever know what's going to
happen.
You may be surprised, you know,getting that five 50 or that
five 20 score FHA borrower withonly 20 percent down approved
through DU, right?
Not having to go manualunderwrite.
That means you have a 56.
9.
DTI possibility as opposed to43%.
So a lot of considerations,obviously, determining the
(08:27):
correct path.
If you're going to go non QM,and these are points we're going
to, you know, we're going toexpand on now, next following
slides is, Each investor, andthis is key, each investor has
guidelines specific to theirorganization and secondary
market needs.
And what I mean by investor hereis not the investors you are
(08:48):
financing, but the investorsthat purchased the loans that we
originate, right?
We don't keep these loans.
We sell these loans, tosecondary market through
different conduits.
So each of those conduits hasSpecific guidelines to the
package that they're trying toput together.
That's the cool thing about nonQM.
(09:10):
Now, obviously there's a, dryingup of credit all of a sudden of
liquidity.
Then at that point, the agenciesmay have a little edge there
because if the funding dries upfor non QM and secondary,
there's no money to lend.
It's not like Fannie Mae,Freddie Mac, and Ginny Mae
that's going to be there.
They'll tighten up like they didduring the pandemic, but they'll
(09:32):
be there.
And then a real important noteabout non QM, especially all our
new MLOs out there, you're nevergoing to have to run DU on a non
QM program, right?
Especially DSER.
I actually had that happen.
Because they are all manuallyunderwritten.
You pick the program that youwant to submit to.
(09:55):
For review, right?
So no, no worries about, whatmay happen to a U S because it
is all manual.
And that's the beauty of non QM.
You are the filter, right?
You are the DU now breaking itdown a little bit here.
When we're talking about agency,agency guidelines only vary due
to investor or lender overlays,right?
(10:19):
That's a critical.
component there.
Now, you see that I put there,the different URLs for Fannie
Mae Selling Guide, Freddie MacSelling Guide, VA Guidelines,
FHA Guidelines, and USDAGuidelines.
Those are the raw guidelines,all encompassing.
And then from there, what youhave to worry about, or review,
(10:39):
should I say, actually, worry ifall of a sudden you get hit with
this as an underwritingcondition.
And here's what we're trying toprevent, right?
We're trying to prevent youstruggling at the end because
you were proactive.
And reviewing these things atthis point, you have to check
the, lender overlays to see whatthey may be for that particular
lender.
That's reviewing, the loan andseeing if it's going to be
(11:01):
approved, right?
So that's, that's the situationon that.
But that's a critical componentbecause now if you are
submitting something, forexample, to FHA.
FHA, let's say, doesn't have acredit score, minimum credit
score requirement, but thelenders will at that point.
Some will go as low as 500.
Some with the du, if it gives itto you, they'll take it.
(11:22):
Others say five 50, others sayfive 80.
Others say 600, 6 20.
It's, it's whatever they want itto say in that respect.
That's an overlay on the loansthat they want to purchase, not
a guideline change at theuniversal level.
Let's talk, let's put it thatway, right.
So, that's really important andthat's why I reiterate here,
(11:43):
note that AUS has higher DTIlimits credit scores than manual
underwrite.
And again, conventional loans,Fannie and Freddie, do not have
manual underwriting optionsusually that we can benefit
from.
So, now non QM guidelines, likeI mentioned are investor
(12:06):
specific.
So what I'm going to show youhere, these two examples, I'm
not going to break down anyserious guidelines here because
there's so many differentscenarios.
Remember, this is about themindset and the following
slides, we're going to break itdown a lot more about, you know,
Specific considerations to giveyou a pointers, the main stuff
that can really get you stuck.
(12:28):
The main thing I'm showing herein this slide and the next slide
is going to be just how the sameexact program covering the same
exact component.
And here I'm, I'm basicallybreaking down one of the hottest
segments of the market was ashort term rental DSCR loans and
(12:49):
how to use that short termrental income on your DSCR loan.
In a manner that's not going toget you hit with LTV reductions
and the like, and, or just tellyou at the end, they can't even
use it for whatever reason.
So, because as I mentioned,guidelines are investor
specific, not product specific.
And I have this happen all thetime.
(13:09):
Avalos emailing, Hey, on a, on ajumbo loan.
Can we do such and such thingwith a gift?
Well, okay, which jumbo loan arewe talking?
Prime jumbo, conform, conformingconventional type jumbo, right?
Or are we talking about a non QMloan that's above conforming
loan limits?
So, in this example here, Right.
(13:30):
As we re review it, excuse me.
You'll note one of the importanthighlights is that a lease
agreement is not required oneven on a refinanced property.
They don't ask you for a lease.
They'll use the 1007, which isthe schedule of market rent, or
they'll use the lease agreement.
If you're trying to get a higherrent than the 1007 rent, then
(13:53):
they'll accept it.
Usually with some considerationsproviding three months of
payments and all that kind ofstuff.
No, they'll let you use shortterm rentals and they apply a 25
percent haircut to the shortterm rental income.
They let you use air D.
N.
A.
and they'll use the 12 monthaverage or 10 oh seven.
(14:15):
If the 10 oh seven is reflectedas a short term rental 10 oh
seven.
So if no actual rent, then theyuse 75 percent of the short
rental, short term rental incomeindicators like AirDNA, right?
So that's, that's, that's thatone there.
Then example number two, again,this is, short term rental
(14:38):
income.
And first you have to know thedifference in how the DSA income
is calculated.
This option requires a lease ifusing long term rental.
What that means is that, and Istop here to stress this because
I've actually seen, deals fallapart because of this.
If you are using short termrental income, I mean, long term
(14:59):
rental income to qualify theproperty, because.
It qualifies the property.
No need to use a short termrental income.
That's, the, that's like anaphrodisiac right of the
investors.
Then, you would want to go tothe option that, that, this
guideline pertains to right.
10 0 7 or lease.
(15:20):
And again, 10 0 7 or short termrental agreement, depending what
you're using.
But again, if you don't code itas short term rental.
It's right here, 1007.
At that point, it could be shortterm rental, but it could be
fully furnished.
Maybe the appraiser marks itvacant on the appraisal, but
it's not vacant, because that'swhat they do with properties
that don't have a lease, right?
(15:41):
If you don't provide them alease, even though it's
furnished, they're going to putvacant, usually on the
appraisal.
And at that point, which one hasan issue with a quote unquote
vacant property on a, on a refi?
Most don't, some do.
Right.
So that's what you got to lookat.
Are they going to ask me for alease or not?
This option right here, no leaserequired, you know, they're,
they're not going to have anyissue there.
No, no reductions or anythinglike that.
(16:04):
However, this one here, lets youuse the air DNA on a cash on a
refi.
The property was just put intoservice, right.
And then season rental.
So maybe you didn't use AirDNAfor the, for the purchase, but
now you can use it when it's,you know, for the purpose of
whatever you need to qualifynow.
(16:24):
So different options on how todo that, but definitely
differences.
For example, this one here, Ithink it has a different kind of
a, of a haircut.
On the short term rental income,or it may depend on the vacancy
factor.
Okay.
No, check this out.
(16:44):
Now a 40 percent vacancy factormust be applied to the short
term rental income from thecomparable rent schedule.
So, if occupancy rate is 60%, soit really depends how the
appraiser.
Narrates the 1007.
So, you know, a lot of differentvariables to consider.
The other one across the boardsays 25%.
So here you just want an extranarrative from the appraiser.
(17:07):
So that's what we're really, youknow, showing you the minutiae
here of breaking down theguidelines and how just missing
one point of the guidelinesthere could cause you to get off
trajectory.
And now all of a sudden befacing an uphill battle where
you're at.
Now, I don't got time to switchprograms.
And now I gotta be asking forexceptions.
(17:28):
Is the exception going to costmoney?
Is the exception going to reducethe LTV?
So, you know, a lot of, a lot ofthings to consider.
And again, this one requires alease if using long term rent,
that's the big scenario, whereasthe other one you can qualify
using long term rent.
If it qualifies, easy peasy,because they don't require a
lease.
(17:50):
So now, you, now you saw themindset, right?
And how important it is to breakit down like that, how important
it is to realize that allprograms in Non QM have
different guidelines, they'reall different.
Don't generalize anything.
You're leaving money on thetable if you generalize, and if
you don't just decide that, hey,I gotta embark.
On the mission.
(18:11):
These are my three, four or fiveoptions rate wise that I like.
Now, let me start looking at theguidelines for these five
options and let me see which isthe best one, because you may
uncover while reading thoseguidelines, that some of those
scenarios pertain to yourborrower and now all of a
sudden, save your loan.
So now we're talking about theimportance.
(18:32):
Now here is we're being the loanconsultant, really comes into
play, right, properly assessingall the transaction details, you
know, borrower details.
I guess we would want to put itthere right.
Now first more transactionrelated here.
Is it a purchase or is it arefinance right now?
Both have seasoningrequirements.
(18:53):
Don't think seasoningrequirements are just an issue
for cash out refines.
Seasoning requirements are a bigtime issue for it for a DSCR
purchase because if you'rebuying, if your borrower is
buying a property that's arecent flip, Recent could be 30
days, you know, within the last90 days or 90 to 180, 180 to
(19:14):
360, they have differentcategories.
Each category has differentrequirements depending on the
capital appreciation on theresale, right?
Wow.
You're like, wait a minute.
I didn't realize it on apurchase.
We were going to have to worryof the properties of flip or
else or maybe LTV reductions andso forth and so on, or, or a
second appraisal requirements.
Yeah.
Off the bat automatic, right?
(19:36):
So no, no, that situation, 90,the 90 day flipping rule for FHA
loans.
That's a purchase requirement.
That's not a refi requirement.
That's a, if your borrower isbuying a property from a
rehabber and they're buying itwith an FHA loan, and the
rehabber has been on title forless than 90 days, they cannot
get into a contract.
(19:58):
On that property, the sellercannot enter into a contract on
an FHA loan until the 91st day.
That's the FHA 90 day flippingrule.
So it has nothing to do with acash out refinance on a
purchase.
More than one deal has beenstung by that one there on a
purchase.
Again, now the easy one everyoneknows about is cash out
refinance using appraised valueversus purchase price plus
(20:19):
renovations.
When the property has less thanX number of months of seasoning,
right?
So we have 30, we have zeromonths seasoning.
available, 6 month seasoning, 12month seasoning.
So, it really depends.
Every deal is, a specific deal.
So, on the DSCR, we have 0 monthseasoning.
On a DSCR, you've done somelight rehab to the property
(20:43):
after purchase.
and improved it, they'll giveyou the market value, but you're
going to have done some rehab.
That that's the main catch now,on the no seasoning DSR options.
We used to have a lot of pure,no seasoning DSR options, but
now they've tightened up that ingiving us lower rates.
You know, they give it, thenthey take it, right.
They've given us much lowerrates on some cases.
They've tightened a few thingsup.
(21:04):
One of the, I think the onething that's been tightened up
has been the, seasoningrequirement, but we can still do
it.
No much seasoning.
Is there a CDA or a secondappraisal requirement on a
purchase for refinance?
That's another big one.
and again, that would depend ona lot of things.
Read the guidelines.
If it's a flip, if it's, is, isone of the big ones.
(21:25):
Or just see you score over 2.
5.
Another reason possibly to haveto get a CDA.
So a lot, a lot of differentthings, going on with that
property type.
That's that's a big right?
Is a rural again.
We have rural options for DSCR,for example.
And we have a rural options forprimary, you know, and I'm not
(21:48):
just talking about USDA or someproducts we have for like hobby
farms, gentlemen farms and stufflike that, for, for producing
farms for actual farms.
And, you know, at DSCR, we haverural options may have, some
additional restrictions toconsider.
(22:08):
Like the comps need to be acertain distance from the
subject and all that kind ofstuff, but that may be doable.
Does it have an ADU?
Is it one ADU or two ADUs?
At that point, are two ADUsallowed?
I just saw a deal fall throughbecause they had a two ADUs on a
property.
Normally municipalities, let youdo one legally, doing more than
(22:29):
one, or you may have theguidelines because of them.
They know how the municipalitiesare.
It's supposed to be a main andwhen it's a single family
zoning, you'll see theguidelines normally won't accept
a second ADU.
Now there may be one out there,I'm not saying there aren't, but
normally they don't, so yougotta then scour the guidelines
and look for that option.
(22:49):
Is it a non warrantable condo?
When it is, you're talking aboutnormally something having to do
with the budget or the finances,right?
No reserves, that's the big one,or not enough reserves, don't
meet the minimum requirement.
Non QM in some cases goes as lowas five percent.
And I'm not talking about a nonwarrantable, and in some cases
we have options where they don'teven check the budget, they just
(23:11):
check the percentage.
Of, residents that are 15percent or more delinquent
that's on a regular condo loan,non QM condo loan for some of
our options that we have.
So again, you got to read theguidelines.
They're all different, but theissues that bring up the item,
bring up issues is the budget,financial matters, and the
percentage of investor, versusowners.
(23:34):
In other words, the rental unitsversus owner occupied units in
the building.
It's another reason that canmake something non warrantable.
Property condition issues isanother big one.
Let me tell you what, it's notthe first time that we've
received the email from theappraiser.
They go out to the property andthey're like, hey, what do you
want me to do here?
Do you want me to do thisappraisal subject to, or do you
(23:55):
want to call me back?
Because basically this propertyis under renovation.
There's no kitchen cabinets,there's no vanities, there's no
toilets, showers underconstruction.
So then at that point, MLOreaches out to the borrower,
borrower is like, Hey, I, I wasgoing to use the money to, you
know, complete the repairs.
I didn't know that was going tobe a problem.
(24:18):
That being said, we do haveprograms for that kind of
scenario.
Renovation loans.
We have some loans that onlyrequire an AVM.
If the LTV is low enough, thereis no interior property
inspection, right?
So at that point, just to note,I mean, it's not going to be an
FHA loan unless it's an FHA 203kloan, which is a renovation
(24:38):
loan.
That's a different story, right?
Or unless it's a conventionalrenovation loan or it's an
investment property.
We do have investment renovationloans.
Conventional for one unitproperties.
And then we do have our fixedflip loans that we discussed
recently that are for the, thetrue investment proper.
Investors with no, prepaymentpenalties and no early payoff,
default penalties either.
(25:01):
So that's, that's a big onethere that you, consideration to
discuss with the borrower.
Right?
Gotta ask that.
A lot of people don't ask thatand they get burned, and then
the, the more obvious right, thecredit.
What's your score?
Trade lines, you know, or onceyou have the credit report,
analyze what are the trade linerequirements.
Normally, at this point, wealready have.
(25:23):
The, the, the data creditreports.
And then now we are reconcilingtwo guidelines.
And a DU does that for usautomatically, but, you know, in
a, should I say, a U S and, andG U S that's for USDA loans does
it automatically for us, but innon QM, remember we are the, a U
S so we're the ones that got,you know, put our nose in the
(25:44):
grinder, review those guidelinesand make sure that, for example,
in some scenarios where you, ifyou have three credit scores,
you know, Some of our, of ourloan options do not, review the
number of trade lines oranything.
The, there's no open trade linerequirements or anything like
that.
If you have the three scores,the, that underwriting model
considers that your creditshould be good and there should
(26:05):
be something there that thosethree scores are there.
And then we're going to look atthe middle score and that's how
that's done.
And other importantconsideration, housing payment
history.
There, we're talking about, doyou have a primary as in a loan
on a primary residence that youown?
Are you paying rent or are youliving rent free or do you have
(26:25):
a primary with no mortgage onit?
Well, on that primary with nomortgage, you're going to pay
taxes, maybe insurance, sothey're going to have you
document the tax payment as yourproof of timely housing payment
in most cases.
And, the no rent scenario couldbe a little bit more difficult,
to overcome.
In some of these cases.
(26:45):
So that's one of the things thatyou have to consider.
Is it a true first timehomebuyer, first time investor
program where you're living rentfree, or do they need to
document for that scenario?
First time homebuyer, first timeinvestor.
It's some rent being paid.
Right.
So those are points to consider.
They're super important,especially on the, non QM and
DSCR, loans.
(27:05):
And even on, believe it or not,one that just came to mind right
now, conventional investmentproperty loans, did you know
that if you are financing aconventional investment property
loans and the borrower does nothave a primary housing expense
of any type, you're not going tobe able to use the 75%.
(27:27):
Unseasoned rental income at thatpoint that zeroed out because
you need to have some type of aprimary housing expense for for
agency loans conventional to letyou use 75 percent of the
unseasoned rental income.
Some of you are probably sayingwhat I didn't know that.
(27:47):
Yep, that one can bite you.
You know where and then ofcourse credit events.
BK's foreclosures collectionsand charge offs.
Now don't be dismayed.
We have options for peoplecurrently in a BK for at least
one year at chapter 13.
We have options for people justout of a BK non QM.
We have options for people oneyear out of foreclosure non QM.
(28:11):
We have options that you don'thave to pay off the charge offs
as long as you can showreserves.
So many different scenarios,just properly analyze a credit
event and properly reconcile itand don't leave any stone
unturned because obviously ifit's a U S a U S is going to
tell you if those charges aregoing to be paid off or not, had
those investment property loansthat they had 50, 000 in charge
(28:34):
offs.
They didn't want to pay it off.
And on the purchase, well, notinvestment property, primary
purchase.
And, but they gave a nice downpayment and they were able to
leave those 50, 000 in chargeoffs unpaid.
same borrower though.
We turned around and did it nonQ, did an investment, ran
agency, loan approval, causeit's for different property.
(28:57):
They bought two properties, aprimary refinance, a primary, or
something like that, or bought aprimary, bought an investment,
but on one side, the primary,obviously less risk in the
algorithm, didn't have to paythe charge off.
The investment more risk in thealgorithm has to pay the charge
off.
So then we pivoted to non QM didthe transaction non QM through
(29:17):
one of the non QM options thatall you had to do was show
reserves didn't have to payanything off either, but see,
that's the beauty of properlyanalyzing the guidelines.
Knowing the objective andfinding the lowest cost option
for the borrower of those tomeet their objective.
And then, other borrower detailsto consider, right?
(29:38):
Now we're talking about borrowerresidency.
Where are they from?
That's going to affect the loantype, LTVs.
Documentation requirements.
did you know that in a fournational, DSCR loan, there's no
first time investor buyerconsideration at all.
And we have options where theydon't even have to verify any
primary housing expense in theircountry of origin.
That's all really importantstuff.
(29:59):
Income borrower income.
We've had all these trainingslately, right?
Are they salaried hourly?
Is there variable income, right?
Overtime bonus commission tips.
Are there income gaps?
Because, you know, if it's morethan 30 days.
They're gonna usually have toprovide an LOE and possible
additional docs to document whatthey were doing if it's a large
gap like six months.
(30:21):
If they're self employed, twoyears plus.
Is usually required for mostprograms, but big, but we have
many options that will acceptonly one year.
I'm doing the loan.
I just, the anecdote I justmentioned, at the beginning here
was the one year bank statement,one year in business, by doing
that, that type of, duties intheir profession for many years,
(30:44):
full doc or all doc bankstatement, profit and loss.
And then our very favorite rightDSCR, but even on DSCR loans,
but like I mentioned earlier,FHA loans, there's borrower and
seller seasoning untitled isreally tight.
On those DSCR loans, you have toreally be on point, but, but
(31:04):
fear not.
Like I mentioned, we have zeromonth seasoning options as well
as six and 12 month options thatare available.
And then assets, right?
You know, this is, this is ourlast slide here.
Assets.
Moat, very important.
Seasoning considerations, 30,Zero 30 or 60 days.
Look at the guidelines and seewhat they require.
(31:25):
This is going to be the same onyour, a U S a U S is going to
tell you, you need one monthbank statement or two months
bank statements, or no reserves,no bank statement need to be
required provided, or maybe noreserves that's usually on your
refinance transactions that are,uh, they may not require.
It's a very strong borrower.
Now, sourcing of the deposit ofthe assets.
(31:45):
Still may be required even ifseasoning is not required
because you got to show wherethe money came from.
Can't just show up with a bag ofcash.
definitely not, it's not in theFinCEN states like, the areas
like, South Florida, right?
Anything over a million dollars,they're going to be, if it's a
million dollars or more and cashwas used in the transaction,
they are bringing out themagnifying glasses.
(32:09):
For those transactions, giftsnow gifts, you know, relatives,
but they can also be from aclose personal friend.
You got to review the guidelinesand see which allow that.
And then is it individual toindividual gifts?
Because, in most cases it can'tbe, LLC to an individual or
individual to an LLC has to beperson to person.
(32:32):
And then reserves be aware.
Again, a U S is easy.
Reserves are going to be,underwriting, on the findings,
right?
But in non QM, there's going tobe a matrix or matrices more
than one with the differentreserve requirements.
And then a lot of differentconsiderations.
Some is just three months on thesubject property and six months
(32:54):
on certain LTVs or below certaincredit scores.
And that's it.
Others are going to hit you perproperty, three months up to a
limit of.
18 months or something likethat.
And so that can be, you know, ahefty sum of money and something
and definitely a structurecomponent that can make or break
your loan.
And then last but not least, onethat gets missed, liquidity
(33:18):
consideration when consideringan asset.
What do I mean by that?
Well, some assets are moreliquid than others.
So checking account, savingaccount, money market, that's a
pure liquid asset.
That's 100 percent of your, ofthe value you're going to
receive, but in some cases youmay not receive 100 percent for
a 401k and IRA or otherretirement accounts.
(33:38):
You may only receive 70 percentor 60%.
Now there may be cases where youdo get that 100%, but you've got
to review all the guidelines toknow, and those will be in non
QM basically, where you may finda more flexible options on the
liquidity consideration on theassets that you're paying for.
So a lot of things that wecovered today.
Real good stuff though.
(33:59):
I know that that's going to bestuff that's going to benefit
everyone that's watching thisand everyone that's going to
watch the replay.
I mean, a lot of these are aroad map to, you know, not
getting stuck on your loan andtrying to close on that.
I have loan officers ask me allthe time.
You know, I'm looking at thisloan transaction and can can
such and such loan submission tosuch and such investor closing,
(34:23):
you know, X number of days.
you know, because, you know, weworry about underwriting
turnaround time as being afactor, right?
But, but then what we really, myreply to them is always, well,
Let's see, we go to the portal,maybe that maybe that investor
is advertising theirunderwriting turnaround time.
Maybe for submissions is 1 day,maybe 3 days.
(34:45):
Maybe we've just had experiencepersonally.
And a lot of these were gettingsame day submissions actually.
And what and 24 submissions or,you know, we can relay a
personal experience recently onsubmissions.
This is what we've had.
But at the same time, then I'm,I'm telling them, listen, then,
you know, the other componentshere is MLO proficiency, right?
(35:05):
That's a really big one.
That one is probably more of afactor than underwriting
turnaround time.
If you're turning incompletefiles, right, turning in
complete files, not incompletefiles, want to make sure it's
not, uh, misheard.
If you are turning in completefiles, then underwriting turn
(35:27):
time should be minimal.
You should only have problemswith multiple underwriting turn
times if you just keep kickingthe file back for resubmission
multiple times.
Because you're just piecemealingit, or just, you know, whatever
you may be doing.
And then they're obviously goingto take a long time on your
file, especially the third orfourth time that it comes for
review.
They're like, Oh no, not thisMLO's file again.
(35:48):
Right?
So real important, that, thatpart there, and especially so
that you can get all your filesreviewed and close your logs
ASAP.
All right.
Thank you, Jose.
Let's see here.
Go ahead and drop any questionsif you have them there in the
(36:09):
chat.
It looks like we have a questionhere.
I'm not sure if I understand thequestion here.
How can someone clear a partnersavings plan?
I'm not really sure what is, Iguess I'd have to look up if a
partner savings plan hasspecific restrictions in the
guidelines.
I've never really seen thatbefore.
Reviewed a partner savings plan,but just know that it sounds
(36:32):
like something that may have alittle bit less liquidity than a
regular savings plan.
So you just have to see thenwhat category it falls under.
And if you have to adjust it nowand asking how to clear, there's
also other considerations tothat question, which would be
terms and conditions of thewithdrawal, right?
(36:53):
Are there any restrictions onthe withdrawal type?
Are you able to withdraw thatmoney for anything you need with
a penalty for anything you needwithout a penalty only under
certain conditions only underhardship?
Not for anything until you're65.
I mean, at all, at all, at all.
So those, those are the factorsthat to be considered.
If you're going to use thatasset, for example, as reserves,
(37:13):
instead of use that asset as anasset, if you're going to use it
as an asset at that point forthe transaction, then you're
going to get credited forwhatever it withdrawn from that
account and deposited into yoursaving into your checking
account or savings, wherever youdeposited to close the loan.
That's what that boils down to.
So if you're actually drawingthe money out.
(37:33):
That's just the documentation,right?
Provide the last, two months orthree months or one month,
whatever they ask you and theapproval in the guidelines,
showing the, where the money wasat, show the transaction of the
money, leaving that account andgoing into the account that's
going to close.
And that would take care of anysourcing requirement.
(37:55):
And then the seasoningrequirement, like I just
mentioned, according to theguidelines, they want one or two
months backstage.
All right.
I do not see any otherquestions, so I think we can go
ahead and wrap it up.
But this was a great 1 here.
Remember, we do this at 7 PM.
Eastern time on Tuesdays,Wednesdays and Thursday evenings
(38:16):
with a new loan officer trainingtopic.
So, the next time we will see,you all will be next Tuesday, 7
PM Eastern for the next episodeof the loan officer training
series.
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