How to Make Non-Conforming or Unconventional Mortgages Work for Your Clients

Family standing in front of their new home.
Closing on a mortgage can be a difficult process, and unconventional methods may have to be used.

Even though real estate agents are most concerned about getting their clients in to a mortgage situation that works with their finances, Central Florida-based lending expert Kevin Boudreaux says that for nontraditional buyers — those with a prior bankruptcy or self-employment income, for instance — it’s all about the exit strategy.

Boudreaux’s 11-year career specializing in loans that others would consider “uncloseable” attests to the fact that there’s a creative mortgage solution for every potential homeowner, even if that solution is a short-term strategy that serves as a bridge to a more long-term loan.

For Realtors, having someone like Boudreaux on speed dial can mean the difference between salvaging a deal and losing it. So what makes Boudreaux and other mortgage brokers special? The experience of dealing with unconventional financial scenarios and access to hundreds of products beyond what traditional banks can offer.

Boudreaux walks us through a few scenarios in which the entire deal hung in the balance until he stepped in, and helps us understand why clients might need unconventional lending, what those loans might look like and how much these kind of loans will cost.

Scenario 1: Common sense lending saves a builder’s deal with a preferred lender that fell apart in underwriting.

Despite the symbiotic relationship between a new homebuilder and their preferred home loan provider, mortgage denials can happen. Such was the case with one buyer, a woman who owned 2 investment properties with a business partner, which greatly reduced her debt-to-income ratio, an indicator lenders consider for loan approval.

Boudreaux contacted what’s known in the business as a “common sense lender,” who owns and services a private portfolio of loans and can therefore approve or deny based on in-house underwriting and personal attention to each buyer’s assets, credit history and income. While this buyer appeared to be saddled with debt, the fact that she was only half-owner of each of her other homes deserved consideration. She was approved for a 702k mortgage, while her Realtor walked away with $21,000 in commission.

Scenario 2: Private money investing gave a cash-strapped recent divorcée the resources she needed.

After one client’s divorce, her finances were in shambles. She needed to get into a cheaper home and fast. But her current house was falling apart, which meant she was having a hard time selling in a tough market.

Boudreaux secured a private money loan, which usually floats a higher interest rate but means more flexible lending standards. This gave Boudreaux’s client the resources to pay off her house, with a buffer of $50,000 in cash to live on and $35,000 to place into home repairs so she can pay her mortgage while she renovates. Boudreaux will work with his client on her credit so that she will get a low, fixed-rate, safe mortgage once she sells her home and downsizes into her new life. The Realtor involved with this transaction will reap the benefits of selling the client’s old home and purchasing the client’s new one, a win-win for all involved.

Scenario 3: Bank statements illustrated that self-employment income was enough to qualify for a mortgage.

Self-employed borrowers face huge barriers to mortgage entry because a lack of W2s means that their income is harder to trace. But Boudreaux helped an entrepreneurial carpet cleaner use a low-doc bank statement loan program to illustrate 24 months of consistent salary deposits to win approval. In addition, according to Boudreaux: “If your credit is good, a self-employed borrower only has to show one year of tax returns to qualify for Freddie Mac.”

Scenario 4: A reverse purchase loan for a 62-year-old buyer meant they never had to make another house payment again.

Retirement-age buyers who want to relocate or downsize don’t necessarily want to drain their assets to buy a home, just as they are reluctant to take on a new mortgage payment just as their income becomes more fixed.

Enter the reverse purchase loan, or Home Equity Conversion Mortgage for Purchase (HECM), which works like this: the buyer puts approximately 50 percent down, using funds from a 401k or IRA; the mortgage covers the other 50 percent and the buyers never have to make a payment for the life of the loan.

The loan then becomes repayable to the bank upon a move or death of the lienholder. Says Boudreaux, upon the closing of one such loan: “Both real estate agents didn’t even know a reverse purchase was possible. The buyer was so happy that she said she ‘hit the lottery’ with this product.”

Scenario 5: A jumbo loan gives buyers a chance to buy a short sale in peril.

Two of Boudreaux’s buyers fell in love with a short sale property worth $650,000. The problem? The sellers had completely ripped out the master bathroom with no plans to complete the renovation; one bank had already denied the buyers a mortgage because of the house’s disrepair. Boudreaux rescued the deal with another lender, based on the fact that the buyers had money in the bank to fix the bathroom on their own after closing.
These scenarios might seem extreme, but they’re not unusual; Boudreaux brainstorms unconventional mortgage solutions on a weekly basis. Unlike other mortgage brokers, who run the numbers and place an order, Boudreaux views his role more as that of an adviser, guiding his clients to individualized solutions. To that end, here is Boudreaux’s key takeaway for Realtors:

  • Underscore to your clients that many of these loans, which often have higher interest rates, serve as an entry point into homeownership. The plan is always to move them into a traditional loan in a few years.

Every real estate agent needs to have a go-to lender that can save the hard files in close, even if they already have a great “vanilla” lender. As Boudreaux’s stories illustrate, not every bank can do everything for everyone. Realtors who have a broker that can convert can make an extra $20,000-$40,000 in income a year. And what agent wouldn’t welcome that?

About the author 

Sarah Kinbar

Sarah Kinbar is a writer and editor with a passion for design and images. She was the editor of Garden Design magazine, curating coverage of residential gardens around the globe. As the editor of American Photo, Kinbar worked with photographers of every genre to create a magazine that told the story of the photographer's journey. She has been writing about architecture, landscape design and new-home construction for NewHomeSource since 2012. During that time, she founded Kinship Design Marketing, a boutique agency that provides content for website redesigns, blogs, inbound marketing campaigns and eNewsletters.

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