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Understanding Non-QM Lending and DSCR Loans

Mar 28, 2025

Lecture Notes: Non-QM Lending and DSCR Loans by Chris Barker

Introduction

  • Presenter: Chris Barker from Angel Oak Mortgage Solutions
  • Chris is an investor for Sean's team at Movement Mortgage
  • Has 23 years of experience in non-qualified mortgage (non-QM) lending
  • Holds a reputation as a top producer nationwide

Key Concepts

  • Non-QM Loans: Loans that do not follow the standard vanilla full documentation requirements (tax returns, pay stubs, etc.)
  • DSCR Loans: Debt Service Coverage Ratio loans, considered 'bulletproof' in real estate

Self-Employed Buyer Programs

  1. Bank Statement Lending

    • No tax returns needed
    • Income determined by averaging 12 months of bank statement deposits
    • Variants include P&L programs and 1099 only

  2. P&L Program

    • For cases where bank statements don't work (e.g., zero deposits, insufficient funds)
    • Requires a P&L statement verified by two months of bank statements

  3. Hybrid Bank Statement and W-2

    • Combine self-employed income with W-2 income for loan qualification

  4. Asset Qualifier and DSCR Loans (not covered in detail)

Advantages of Bank Statement Lending

  • Larger market than veteran loans due to more self-employed/1099 individuals
  • Underserved market with a need for expertise
  • Rich, high-value clients often self-employed

DSCR Loans

  • Characteristics: No income verification, no employment verification, no DTI calculation
  • Eligibility: Investment properties only
  • Process: Rent must cover or exceed the mortgage payment
    • Appraisal determines potential rental income

DSCR Loan Examples

  1. 1:1 Ratio: Rent equals mortgage payment
  2. 0.8:1 Ratio: Rent is less than mortgage payment
  3. No DSCR: Rent does not cover any mortgage payment (requires higher credit score and down payment)

Marketing Strategies

  • Advertise as a "Self-Employed Buyer Expert"
  • Utilize customizable flyers and co-branding opportunities

Underwriting and Closing

  • Minimum Requirements: $150,000 loan amount, 640 credit score
  • Underwriting Process: Starts with appraisal return
  • Loan Terms: Fixed rates, interest-only options available

Interest-Only Loans

  • 10-year interest-only option available
  • Can recast loan with no penalties when paying down principal

Asset Depletion Method

  • Uses a spreadsheet to determine income equivalency from assets
  • Applicable to stocks, bonds, mutual funds, and retirement assets

Q&A Highlights

  • Must own a home for DSCR loans, but not necessarily a primary residence
  • Underwriting mostly waits for appraisal for DSCR loans
  • Interest-only period lasts 10 years
  • No fees for recasting loans on principal paydown

Conclusion

  • Emphasizes creativity and understanding of borrower ability to repay
  • Encourages participants to reach out for guidance and partnership in closing loans

These notes provide a comprehensive overview of the presentation by Chris Barker, focusing on non-QM lending and DSCR loans, tailored for real estate professionals interested in tapping into the market of self-employed and non-traditional income borrowers.

Full transcript