December 30, 2019
Unconventional mortgages include subprime loans, which are made to borrowers with blemished credit, loans made to borrowers without a Form W-2 or other standard documents, and other loans that don't meet the standards set by the Consumer Financial Protection Bureau. Why do we mention this? Because Orion Lending offers a wide variety of products to our clients to help them finance the home of their dreams. And in 2018, the number of unconventional mortgages increased to the highest level since the mortgage meltdown in 2008.
However, the unconventional loans of today are far different than those of the past. Today lenders like Orion are required to make a good-faith effort to determine that a borrower has the "ability to repay." Lenders will often require a high credit score and a large down payment to offset the risk of a high debt-to-income ratio, limited documentation or an interest-only loan.
The primary reasons that borrowers took unconventional loans in 2018 were that they had limited or alternative documentation, they had a debt-to-income ratio above 43%, or they wanted an interest-only loan, according to CoreLogic. Borrowers who are self-employed or earn commissions may have a harder time verifying their income, so lenders may rely on bank statements rather than tax returns. Qualifying with a higher debt-to-income ratio is common among younger borrowers, who may have student loans, and retirees with fixed incomes, who spend a higher portion of their income on housing.
Orion offers its Edge Program in addition to conforming conventional loans, underwritten and processed according to the strict guidelines of Freddie Mac and Fannie Mae. Our AEs offer products in the FHA (Federal Housing Administration) and VA (Veterans Administration). We have various bond programs, jumbo (high balance) programs, and adjustable rate programs that you can take advantage of to offer to your clients.
Although not considered “unconventional” loans, FHA or VA programs exist that don't require the larger down payments, or include more lenient financial standards, so that you can still obtain the loan you need. Both loan programs have lower down payments and relaxed credit standards making it easier for first-time homebuyers, veterans, or lower-income households to purchase a home. However, qualifying and closing an FHA or VA loan can be more complex than a conventional mortgage. Your Orion AE will fill you in.
“Jumbo" mortgages, greater than $510,400 conforming loan limit ($765,600 in high cost areas served by Orion), with no mortgage insurance for loans with LTV greater than 80% up to 90%. These programs often "self-insure" the loan by charging a higher interest rate than a mortgage with 80% loan to value, but there is no separate underwriting or payment.
Remember that Orion’s goal is a satisfied customer, which in turn means that your client is satisfied. We are going to offer you the best rate, and the best program that fits your needs. And Happy New Year from Orion!