Well, it’s a new year, and with that comes new and exciting home loan programs to help borrowers purchase homes or refinance existing mortgages.
The newest one comes courtesy of Guaranteed Rate, which launched its “GR Flex Power” mortgage that requires as little as 10% down on loan amounts as high as $3 million.
Additionally, those who are able to muster a 15% down payment can take advantage of an interest-only option on both fixed mortgages and ARMs.
And despite the down payment being less than 20%, the GR Flex Power loan does not require private mortgage insurance to be paid.
That’s a good thing seeing that it’s no longer tax deductible. Of course, the mortgage rate will probably be higher to compensate for the lack of PMI.
Whether that turns out to be a net positive or negative will depend on how you pay your taxes.
GR Flex Power Is Underwritten In-House
It should be noted that this new jumbo loan program is a portfolio product, meaning it is proprietary to Guaranteed Rate.
This allows them to underwrite the loan program in-house, instead of being at the mercy of third-parties such as Fannie Mae, Freddie Mac, or the FHA.
As such, they’re able to waive the PMI requirement and offer loan amounts as high as $3 million, those that greatly exceed the conforming loan limit.
Along with that, they will allow debt-to-income ratios as high as 50%, which exceeds the 43% limit allowed under the Qualified Mortgage (QM) rule, a maximum generally imposed by Fannie and Freddie.
Another QM-rule breaker is the interest-only option, which was banned under the QM rule because of its inherent risky nature.
It’s fairly difficult to find a lender willing to extend an interest-only option these days, especially with that little down and that large a loan amount.
It’s even available on condos, and Guaranteed Rate says they offer “flexible condominium warrantability,” meaning financing might be extended even if typical building requirements aren’t met.
Will 2018 Be the Year Non-QM Lending Takes Off?
That brings us to an interesting question. Will 2018 be the year lenders get creative and start offering up their own loan programs that don’t meet rigid government guidelines?
A lot of people are worried that home prices have gotten too expensive, but absent risky financing, most aren’t worried about another housing crisis anytime soon.
But if banks and lenders begin toying with more of the features that brought the housing market to its knees more than a decade ago, we could find ourselves in a familiar place.
The good news is it won’t happen overnight, and many if not all of these loan programs have checks and balances in place to avoid too much layered risk.
For example, the GR Flex Power mortgage seems to require at least six months of reserves, so you actually need to have some money in the bank.
And you need skin in the game as well – this isn’t a zero-down financing program. Though Guaranteed Rate does have a 1% down program as well.
I expect more of these types of loan programs to surface this year as players attempt to differentiate themselves amid dwindling volume.