Home buyers with variable income often wonder if they can qualify for a mortgage loan…
An Overview of Nontraditional Mortgage Options for California Borrowers
In this article: an overview of nontraditional mortgage financing options in California, including bank statement loans, hard money loans, asset depletion and more.
Many home buyers in California use traditional loans when buying a house. A traditional or “conventional” mortgage loan is one that can be sold to Freddie Mac or Fannie Mae through the secondary mortgage market, reducing risk for the lenders that offer them.
But not all borrowers can qualify for traditional mortgage loans in California. Some borrowers have nontraditional assets, income or employment that a traditional lender might not accept. And they might need money in a hurry, rather than waiting through a time-consuming underwriting process.
This is where the nontraditional mortgage loan comes into the picture.
Some home buyers in California use alternative financing strategies like hard money loans, asset depletion loans, and bank statement loans to finance their purchases.
We’ve written about California nontraditional mortgage loan options many times in the past. Today, we will summarize and revisit some of those articles, to help you understand the many different types of financing available for home buyers in California.
What Are Nontraditional Mortgages?
The term “nontraditional mortgage loan” refers to alternative lending products designed for borrowers who might not qualify for conventional loans for some reason. These financing options often deviate from standard lending practices in terms of eligibility criteria, documentation, or payment structures.
In a broad sense, California mortgage loans can be divided into three general categories.
- First, we have the traditional conventional loans that can be sold to Freddie Mac or Fannie Mae.
- There are also government-backed mortgage programs available, such as FHA and VA loans.
- And then we have nontraditional loans that do not fall into either of those categories.
Hard money loans are a good example of the third category, a nontraditional mortgage product. These short-term, asset-based loans are secured by the value of the property being purchased. They’re often used by borrowers who are unable to qualify for traditional financing due to past credit issues or other factors.
Asset depletion and bank statement loans also fall into the nontraditional category.
Features of Nontraditional Mortgages
The pros and cons of nontraditional mortgage loans in California can be summed up with a single sentence. They offer a faster path to financing and can use alternative income sources not available with traditional loans, but they tend to come with higher interest rates and fees.
Here are some of the primary benefits offered by these alternative mortgage products:
- Flexible Qualification: They often have more lenient eligibility criteria than traditional loans, considering various income sources or asset classes.
- Customized Terms: Nontraditional mortgages may offer more tailored terms to suit specific financial situations.
- Speed and Accessibility: Some options provide quicker access to funds than conventional loans, crucial for certain property transactions like flipping.
Learn More: 10 Helpful Articles on Our Blog
We’ve written about the different types of California nontraditional mortgage loans in the past. Here’s a collection of articles you might want to peruse, if you’re considering one or more of these alternative financing options.
Hard Money Loans
Hard money loans are short-term, asset-based loans secured by the value of a property. This financing option can provide quick funding to borrowers who might not qualify for a traditional mortgage loan, due to their income, credit score, or other disqualifying factors. The “hard” label stems from the tangible or hard asset that’s used to secure the loan.
Related articles on our website:
- How hard money loans work
- Using them to buy investment properties
- Why they’re popular with house flippers
Asset Depletion Loans
Asset depletion loans utilize a borrower’s assets—such as investments, stocks, or retirement accounts—to calculate income for mortgage qualification purposes. These loans can benefit individuals who have significant assets but lower regular income, allowing them to leverage their wealth to meet mortgage eligibility requirements.
Related articles on our website:
Bank Statement Loans
Bank statement loans are tailored for self-employed individuals, or those with nontraditional or fluctuating income sources. Instead of using tax returns, these loans rely on bank statements to verify the borrower’s income. They’re also more flexible than a traditional mortgage, because they use deposits as a basis for determining income stability.
Related articles on our website:
- How bank statement loans work
- How they compare to traditional mortgages
- How they benefit self-employed borrowers
Restricted Stock Units (RSUs) for Mortgage Qualification
With this nontraditional financing option, borrowers who receive restricted stock units as part of their income and compensation can use those RSUs to qualify for a mortgage. Lenders may consider the value of vested RSUs as part of the borrower’s income, allowing individuals in this situation to leverage their stock holdings to meet mortgage requirements.
Related articles on our website:
Ready to Explore Your Financing Options?
Are you in the market for a nontraditional mortgage loan in California? Want to explore your financing options to figure out which one might be a good fit? We can help!
Bridgepoint Funding has been serving borrowers across the state of California for nearly 20 years. As a mortgage broker, we have access to a wide variety of lenders and loan products. This includes traditional financing as well as the alternative and nontraditional mortgage options mentioned above.
Please contact us if you have questions about any of the mortgage strategies covered in this article, or if you would like to apply for a home loan. We look forward to hearing from you.
