What is the “New Normal” in Mortgage Lending?
I have been involved in the mortgage lending industry for almost 30 years. When I started, the acceptable income to payment ratios on a mortgage loans shouldn’t exceed 28%, and that the customer’s ultimate debt-to-income ratio should not exceed 36%.
On paper, those numbers still look very reasonable. In practice, though, they can be unrealistic for many borrowers. With a new housing boom going on, a lack of inventory and high levels of debt people carry, some people hit the 36% debt-to-income ratio quickly due to student loans, car payments or credit card debt.
These days, lenders are working with debt-to-income ratios closer to the 43-50% range. That’s the “new normal” in the industry. Even with these relaxed expectations not every customer can qualify for conventional lending. From 2001 to 2008, home loans were being approved with high debt-to-income ratios, as high as 63-65% and we all know where that got us. If 65% of your income is going toward paying your mortgage, and if an additional 20-25% is going toward taxes, how much does that leave you to live on? In most cases, not enough, which is why so many of those pre-recession mortgages ended up defaulting.
The numbers don’t lie: Non-QM mortgage loans have made a comeback.
In 2018, Non-QM mortgage lending hit its highest rate since before the mortgage crisis. What many people don’t realize is that with Non-QM mortgage loans every customer’s story is different, which means the right answer for one person is going to be different than what’s best for someone else. What is important to understand is that Non-QM Loans often carry higher risks and less favorable terms than conventional loans – from higher interest rates to shorter repayment periods.
The Bottom line is, if you consider using a Non-QM loan, take time to talk with a traditional lender like Stockton Mortgage who looks to use the lower rate, agency programs available first. Conventional loans, FHA, VA and USDA are regulated to protect Loan officers and Companies protection as well as the most important person, the borrower.
At Stockton Mortgage, we are Agency Loan experts first but have Non-QM mortgage products for when they make sense for the borrower. We have access to Non-QM loans for all kinds of non-traditional situations. Not all Non-QM borrowers have issues qualifying for the payments or down payments, sometimes their situation falls outside of agency guidelines because of a one-time life event and just need a product to get them back into the housing market until they’ve proven themselves and straightened out their situation.
If you’d like to learn more about Stockton and all our products, marketing support, pricing and our family, give me a call. Rick Koenig 513-382-5861 or email me rkoenig@smcapproved.com
