High Assets | No Job | Normal Mortgage: “I can afford the house outright. Why does the mortgage loan officer or bank care about W-2 income?”

by | May 14, 2021

This is an excellent question, and like many things when it comes to applying for a mortgage, it ties back to the events of 2008. In the fallout of that event, numerous things happened, including the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act shifted the focus of mortgage underwriting to an emphasis on stable recurring income from verified sources, the classic example of course being a W-2 job with a nice steady base salary to make the mortgage underwriters feel good about your capacity to make the monthly payments moving forward. They did not completely outlaw mortgages that do not focus on this, but they created a “safe harbor” for those that do, called the Qualified Mortgage (QM) safe harbor. Qualified Mortgages must be fully documented, and have various other consumer protections as well, such as limits on the interest rate relative to market, fees, and a requirement that all payments must include a portion that goes towards not only interest, but paying the balance down too.

Mortgages that do not check the QM boxes are called “non-Qualified Mortgages,” or “non-QM.” These are sometimes billed as “alternative documentation,” or “bank statement loans,” and are about as close as you will likely find to a classic pre-2008 “sub-prime” mortgage these days. Between about 2016 and until the 2020 Pandemic, these were the fastest growing category of the mortgage market. Since the lender has already moved outside the QM box, there is no additional penalty to them for charging points and fees above and beyond what would otherwise be allowed, and sure enough these mortgages frequently have staggeringly high interest rates and fees, relative to market norms, which contributed, and continues to contribute, to the proliferation of these programs. They are also very typically not a particularly pleasant experience when it comes to underwriting and the process — to validate that for yourself, conduct an internet search for “non-QM lender,” pick a few companies that come up, and do another series of searches to read their reviews. If that combination of high rates, high fees, and a horrible experience, does not sound appealing to you, you are not alone. We do not offer non-QM loans, but keep reading for what we do offer.

This confluence of events and regulations described above introduces an absurdity. Occasionally a higher net worth individual, perhaps even with more saved than the price of the house, would like to finance a portion of the purchase rather than buy it outright (leverage being a common motivation), but they are only offered non-QM financing when they inquire about financing. This is often because they have enough saved and invested that they can maintain a quality of life they find satisfactory (these are often very frugal and fiscally responsible individuals who are good savers) just on the dividends and returns from their prudent and safe investments. Because of that, they have no reason to get a job. And why should they get a job? Good for them! The reason this is absurd is that these people are often some of the safest bets a bank or lender could possibly make when it comes to granting mortgage credit, but most banks and lenders do not see it that way, and so these excellent savers find themselves being offered significantly higher rates, with higher fees, and so on, compared to what W-2 employees with shaky credit and minimal down payments are offered!

If that sounds like it describes you, then you’ve come to the right place. For higher net worth individuals, we are proud to partner with a small selection of lenders who offer common sense Qualified Mortgages. Because they are Qualified Mortgages, the borrower will enjoy standard protections against high rates and fees. So long as you can check all the other “normal” boxes, we will in fact be able to stand proud behind the terms we can offer you without worrying about your employment status, there is no “hit” to the rate, nor are there any special fees assessed. I will list out some of the “gotchas” and caveats of this program below:

  • Do you have at least 4 years worth of monthly PITI payments (we have an app for that!) saved up, invested, or otherwise semi-liquid? As hinted at above, this is for families that are higher net worth, relative to their home purchase price desires.
  • Do you want to keep that money working for you, rather than paying cash for a home and depleting your investment accounts unnecessarily? Excellent choice, we agree with that philosophy, especially when rates are as low as they have been lately.
  • Is your savings located within a financial institution, such as a bank or investment account? This is not intended for “suitcases of $100 bills” type scenarios.
  • Do you have a decent credit score?
  • Are you looking to buy in California? Our licensing, for now, is only good in California. Depending on what state you are looking to buy in, we may be able to provide a referral to you.
  • “I already purchased a home, using one of those non-QM options, I paid unusually high points and fees at that time, and I have an interest rate that I’m none too happy with. Can I use this to refinance?” Yes! We aren’t going to be able to get those points and fees back, but moving forward we would be happy to look at optimizing that interest rate, and denying the non-QM lender future interest payments from you.
  • Are you a first-time homebuyer? Great!
  • Are you a second-time homebuyer, a move-up buyer, a move-down buyer, or a real estate investor? Great! There are no requirements pertaining to your personal experience with owning real estate, or lack thereof.

Did I mention that we make it super easy to set up a time to chat? When you click the following link, it’ll take you about 30 seconds to book a time to chat, and we do not charge any consulting fees, nor do we charge for preapproval. No account creation or email confirmation is needed to set up a time to go over your options, and we do not bite. Please click here to set up a time to chat or click here to drop us a line!

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