It seems that on all fronts 2020 is poised for very favorable conditions making the housing market one to embrace.
With continued low mortgage rates, increased employment rate and new construction due to a low supply of existing homes, homebuyers and property investors have a lot to feel confident about going forward into 2020. Non-QM lenders, such as Angel Oak Mortgage Solutions, are also feeling confident knowing that the growth of non-QM will again be robust next year. Non-QM volume is still one of the only areas showing growth in the mortgage space today. Understanding the non-QM borrower and choosing the right non-QM lender can help make 2020 a very successful year for growing business volume.
THE NON-QM BORROWER
Here come the millennials! According to the National Association of Realtors, millennials made up 36% of all homebuyers in 2019 surpassing other demographics. Millennials have been assessing the market for years now and many still prefer to rent. The main challenge for them is affordability. The Cash Shiller Home Price Index in the U.S. was at 218.27 Index Points in September 2019. This was an all-time high and makes it difficult for first-time homebuyers to purchase a home. Although this may be true, it is projected that millennials will drive the U.S. housing market next year.
Realtor.com recently issued a report stating that around 4.8 million millennials are turning 30 and expected to take on close to half of all mortgages next year. The other end of the millennial demographic is nearing 39 and planning on a move to the suburbs for their growing families. How can non-QM help this demographic? Through Non-Prime product options created for those with student debt, credit card debt, less than 20% down, and lower credit scores. Non-QM could help millennials get into a home before they think they can. They just don’t know that alternative lending options are available. This a great demographic to target for educating and prospecting. Entry level homes and new starts are perfect for this group of potential new home buyers. In fact, builder confidence is growing and according to the National Realtors Association, housing starts are expected to increase 11.5% in 2020 from 2019.
Many self-employed people have purchased homes thanks to non-QM bank statement loans. According to projections, we can see much more of that to come in 2020 and beyond. According to a FreshBooks survey of professionals, 33% of the workforce will be self-employed in the coming years and 27 million Americans plan to leave full-time corporate jobs for self-employment. A lender who makes it easy to process bank statement loans is set to increase their volume in 2020. Angel Oak Mortgage Solutions has focused on this growing segment of the labor force knowing bank statement loan products are in demand. Their goal was to get these non-QM loans closed as easily and fast as a conventional loan. A bank statement review team that completely reviews, analyzes deposits and calculates income for you at the prequal stage(not during underwriting) has helped them make that happen. Self-employed borrowers with excellent credit have a really challenging time qualifying for a home loan without non-QM bank statement loans. These are good, solid loans and bank statements may actually be a better reflection of income as they are based on a review of 12 to 24 months of deposits. This is significantly better than the verification process pre-crisis.
Another excellent prospect for non-QM are property investors. They will see a market perfect to build portfolios as many millennials still prefer to rent. The single family for rent market is a hot market and projected to thrive in 2020. Many builders are developing communities for buy to rent with excellent amenities for millennials or anyone who wants single family houses instead of apartments. An Investor Cash Flow loan product is a non-QM product specifically designed for investors to grow portfolios. This loan product allows cash flow on the property to be used to qualify for the loan. Tax returns and employment information is not required. The potential for significant ROI in 2020 is out there with the right broker and lender to help get it done.
Borrowers with lower to poor credit might be closer to qualifying than they think. They need a broker who knows about non-Prime products that match their circumstances. There are mortgage products out there with low minimum credit score requirements to help lower credit applicants get to the closing table. This is another case where an expert lender with prudent underwriting is critical. Prospecting for these potential homebuyers is a smart strategy for any broker next year. People with lower credit scores who can prove their ability to repay their loan deserve to qualify for a home loan.
Low mortgage rates aren’t going to continue long-term. Many people are going to want to take advantage of the market now and decide not to wait any longer to purchase a home. Non-QM options can help them if they still aren’t where they want to be with saving for a down payment or improving their credit scores. Foreign nationals and borrowers needing Jumbo loans are other examples of non-QM and non-Agency borrowers.
CHOOSE THE RIGHT NON-QM LENDER
As mentioned, the growth of non-QM in 2020 is going to be robust once again according to recent projections. Angel Oak Capital Advisors projects up to $75 billion in non-QM issuances over the next few years. The market is going to remain fiercely competitive and it’s also projected that many newcomers will adopt non-QM at a rapid pace. It is the only area still growing and many people in the mortgage industry want in and they want to start quickly. Non-QM loans are strong performing loans that will allow the market to remain healthy and grow. There is no need for distrust of non-QM or concerns these loans will lead to another crisis. These same regulations, though,have made it challenging even
for creditworthy borrowers to obtain a mortgage. Thanks to seasoned leaders in the space, non-QM is now at an estimated$23 billion market.
The growth potential is huge and brokers can count on this segment to grow their business capitalizing on this market. To do so, however, depends on alignment with the right lenders and the right approach to non-QM.