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34 | M R EP O RT FEATURE business owners, who continue to increase in numbers. According to the U.S. Bureau of Labor Statistics, there were 9.6 million Americans who were self-employed in August of this year, which was up nearly 1% from July. As an originator, few things are more demoralizing than having a motivated client and not being able to find the right financing for them. Fortunately, we have a few options that can get more buyers into their dream homes—specifi- cally, non-QM construction loan products. These products, which combine the expanded borrower criteria typical in non-QM loans along with a single-close construction loan, are quickly growing in popularity among self-employed borrowers, business owners, and real estate investors seeking to build their dream home or rental property. As with a growing number of traditional construction loans, there's only one closing, too. Borrowers can finance the construction of their project at zero interest and lock in their per- manent loan rate within 60 days of closing. Of course, the FHA offers a one- time close, a construction-to-per- manent loan for people who want to build their own homes and don't have perfect credit. The FHA loan, however, is limited to primary residences under the agen- cy's loan limits and its qualifying guidelines are much more stringent than non-QM products. With a non-QM construction loan, borrowers can get up to $2 million in financing for the construction of primary residenc- es, vacation homes, or investment properties. If they have decent credit, they can finance up to 80% of the property's value, and up to 85% of the value with an excellent score, and not pay any mortgage insurance. Investors can also use these products and qualify on a debt service coverage ratio (DSCR) basis. In such cases, we will look at a conservative estimate of the proposed rents for the property and compare that to the principal and interest (P&I) payment. If the P&I is lower than the proposed rents, they can qualify, regardless of their other income and liabili- ties. In other words, the property is being qualified, not the borrow- er. This makes non-QM construc- tion loans a terrific option for the first-time investor who wants to build a rental property and help with the nation's housing shortage. At the same time, it can serve as an alternate investment to an already uncertain stock market coping with Fed rate hikes. Another advantage to these products is that they appeal to all builders. While most large home developers have their own mort- gage companies, not all of these mortgage companies typically provide non-QM loans. In some markets where there is invento- ry but not many homebuyers, builders like to see more financing options for borrowers. Most are happy to build for customers who have other types of loans like non-QM construction products. Non-QM construction loans can also be used to buy almost any type of residential property, including non-warrantable condos and even duplexes, regardless of the type of financing from the other buyer. They can even be used on manufactured homes. While there are typically prepay- ment penalties for these products, borrowers can avoid them by paying a slightly higher rate, too. How to Take the Wheel W hile non-QM construc- tion loans would seem to appeal to only a minority of borrowers, our own loan officers have had no trouble finding people for whom this type of fi- nancing is a perfect fit. If a lender or originator has a moderate-sized book of business, chances are someone in their client database could use non-QM construction financing. The number of poten- tial clients for these products is likely to grow, too. Of course, construction loans still aren't the simplest to origi- nate. For this reason, originators who want to take advantage of them to keep business flowing need a competent wholesale partner that has in-depth experi- ence on all types of construction loans. That includes agency and non-QM single-close construction to permanent loans, construc- tion loans with rate cap options, jumbo construction loans, and construction-only loans. And they need to choose a wholesale partner wisely. For example, some lenders that do construction loans outsource a lot of the administrative functions involved with originating them, such as approving builders and managing funding draws. These processes can lead to significant delays and borrower frustration when not done correctly and expediently. The wise path is to find a wholesale partner that manages these processes in-house, so lenders have some measure of control over them and a source for accountability. Also, keep in mind how a po- tential wholesale partner qualifies borrowers. Many people looking to build a home will go first to a local bank, which tend to be more conservative and tighter in their lending guidelines. Independent mortgage banks, on the other hand, are generally more flexible and willing to work with bor- rowers who have slightly higher debt ratios or other factors that weigh into their overall financial picture. It's also smart to partner with a lender that has experience qualifying and underwriting homebuilders to ensure whatever company builds the home has a strong performance record. While times have quickly changed, all originators should ensure they have access to every loan product under the sun, so they are ready when they encounter bor- rowers who need a special type of financing. If you truly want to serve every client who wants to buy a home and can qualify, construction loans, including non-QM options, are a great tool for getting more business in today's environment and are likely to be much more valuable down the road. The late comedian Milton Berle once quipped, "If opportunity doesn't knock, build a door." For unserved borrowers looking to build real estate with nontradi- tional financing, the door has now been built. All that's left to do is open it. MICHAEL ISAACS is the CEO of GO Mortgage. As an originator, few things are more demoralizing than having a motivated client and not being able to find the right financing for them.