What is Alternative Lending?
Alternative lending is a mortgage industry term for loans that do not meet the Qualified Mortgage guidelines. Often, these loans are utilized when purchasing or refinancing is not an option due to factors such as income or credit. Additionally, options designed for real estate investors such as a DSCR (Debt Service Coverage Ratio) product has become very popular.
Alternative Lending loans are designed to help consumers who would not typically qualify for a conforming mortgage. They have a higher underwriting risk factor, and therefore usually have higher interest rates. These loans are frequently used as a temporary solution until a borrower can qualify using a traditional, qualified mortgage.
Examples of Alternative Lending Loan Types
Bank Statement Loan: A Bank Statement Loan allows a consumer to utilize bank statements for income calculations. This is a very good option for a self employed consumer who writes a lot of expenses off on taxes, but shows consistent earnings through bank deposits. A lender will require between 12 and 24 months of bank statements from either a personal or business account.
1099 Income Loan: Another loan solution for self employed borrowers that does not require tax returns. The income is calculated using the 1099’s, paystubs and/or bank statements.
Asset Utilization Loan: A Asset Utilization Loan allows a consumer to use established assets to qualify for a mortgage. Examples of assets can be stocks, bonds or other investment accounts. It can also include other account types to show adequate assets are available to repay the loan.
Portfolio Loan: A Portfolio loan is similar to a typical conforming loan, but allows for a consumer to have credit blemishes such as bankruptcy or foreclosure that has not seasoned long enough to qualify for a Conventional or FHA product. A borrower can expect to be asked for same documentation as a conforming loan.
Foreign National Loan: A Foreign National loan is an investment property loan issued to a foreign national. It lacks the requirement for established credit and relies on seasoned and sourced assets to qualify.
DSCR/Investor Loan: A DSCR (Debt Service Coverage Ratio) loan is designed for real estate investors who want to use rental income from a property to qualify. In most cases a minimum of 20% is required as a down payment. These loans are great solutions for investors to increase their real estate portfolio.
