Describing the modern-day mortgage market as challenging would be an understatement, to say the least.
Mortgage interest rates have steadily ramped up throughout 2024. The average rate throughout 2024 for 30-year fixed mortgages was 6.72% — higher than it was during the 2008 market crash. If that’s not enough, affordability is still a distant dream for most homeowners. Home prices remained elevated for most of 2024, increasing more than 5% year-over year in the fourth quarter. Most of those high-priced homes were existing properties, interestingly enough. Why is that important? It reflects another pressing issue of imbalanced supply and demand in the housing market. Buyers want affordable new homes, yet new construction listings are still playing catch up with their high-priced counterparts.
In addition to all of these challenges, economic factors outside of housing are making it harder for potential buyers to acquire qualifying mortgage loans. But, what if there was a way to level the playing field for non-qualifying borrowers? Most lenders focus on offering traditional mortgage loans to clients, choosing to shy away from “unconventional options” in the market.
However, those lenders aren’t seeing the big picture.
Instead of sticking with traditional loans and eliminating non-qualifying borrowers, mortgage lenders should turn to non-qualifying (non-QM) loans to serve more borrowers. Non-QM loans don’t meet the requirements of a traditional loan. They allow borrowers to qualify for non-traditional income, credit issues, and higher-than-average net worths. It’s the perfect tool for lenders looking to help more borrowers — and one company is positioned to help you harness it.
Deephaven Mortgage — a pioneer in non-QM lending — offers loan products to serve borrowers who might not otherwise qualify for a traditional loan. Of course, Deephaven goes beyond helping borrowers acquire loans. The Charlotte-based company provides tools and training resources for mortgage loan originators looking to impact the market.
The importance preparing yourself with non-QM options
The mortgage industry is fickle. That’s a hard fact that any mortgage professional with experience is acutely aware of. Supply chain issues and other factors can raise national interest rates. From there, mortgage rates follow suit, rising to levels that force many would-be homebuyers away from the market. For example, according to HousingWire’s Mortgage Rates Center, interest rates for 30-year mortgages grew from 7% to 7.36% between December 26, 2024, and January 24, 2025. That’s quite the jump in less than a month.
Even if lenders find a good candidate for a loan, headaches may still ensue for lenders. Finance a loan, and you may lose money. Avoid financing, and you risk missing out on a sales growth opportunity. If lenders continue without the proper tools and support, they’ll look back on their journey and wish they had chosen differently. It’s pretty simple: you need a diverse product toolkit — and Deephaven offers precisely that. The company takes a unicorn approach to arming originators against the challenges of the market. With the right rolodex of products, lenders won’t have to turn a single borrower away — regardless of their loan type. Luck and success favor the prepared — and that fact remains in the mortgage industry.
Key non-QM products for 2025
Before 2025 continues, lenders should arm themselves with the right tools for tackling the market:
Investor loans
Investing is the vehicle to success for homeowners in the market. Debt-service coverage ratio (DSCR) loans and LLC lending options are the apple of the eye for many potential investors looking to tap into a growing market that accounts for almost 28% of purchase transactions.
Deephaven’s DSCR loans are great options for borrowers looking to qualify based on their property’s potential income. It doesn’t require borrower income verification or employment information. If that isn’t spectacular enough, Deephaven offers interest-only options for maximum property cash flow alongside cash-out solutions to consolidate debt and unlock equity. These loans go up to $2.5 million, so it’s primed and ready to meet the needs of most property investors. Also, DSCR five- to nine-unit loans are designed for larger multi-family homes. This loan type offers up to $2 million in financing. Beyond that, Deephaven allows up to 3% seller concessions at closing.
Both loan types allow all borrowers to invest using an LLC, granting access to tax benefits and other great things.
Equity solutions
Home renovations and debt consolidation are two avenues toward financial prosperity for borrowers. However, it can be challenging to achieve these goals without two specific products: home equity lines of credit (HELOC) and second liens.
Deephaven’s Equity Advantage Closed End Second is a second mortgage designed for one purpose — assisting borrowers in borrowing their equity. It’s open for most home types, including primary residences, second homes, and investment properties. Qualifying home types include single-family, townhomes, 2-4 units, and condos. Equity Advantage HELOC loans offer similar benefits as a revolving line of credit.
Construction loans
Inventory levels in the real estate market aren’t what they used to be. The lock-in effect — when homeowners avoid selling to hold onto good rates — permeated the market this year, which increased demand for new construction homes. Now, construction homes dominate purchase transactions in the market. How are real estate investors responding? They’re building new homes to rent or flip for money. As such, they’ll need ground-up construction loans.
Bank statement loans
Accepting a borrower who doesn’t have a traditional 9-5 job can be a challenge for some lenders. Over 19 million borrowers classify themselves as self-employed, so originators eliminate many potential clients if they can’t qualify them. Fortunately, there’s a solution. Bank Statement loans are designed for self-employed borrowers. They only require 12- and 24-month bank statements from borrowers, and multiple accounts can fully represent a candidate’s work history.
The power of training and expertise
Loan originators can significantly benefit from detailed training before meeting new borrowers in the market. Deephaven offers training resources to instruct loan originators on offering non-QM loan products to clients. These offerings include over 80 monthly webinars, all discussing various topics, such as warrantable condo solutions and alternative lending options for jumbo loan borrowers. So many options are available that originators won’t need to search anywhere else for top-notch educational content.
Training can quickly transform originators into product experts, undoubtedly granting an advantage in the marketplace. Ultimately, it comes down to building expertise and putting in the repetitions. Think of an award-winning shoulder surgeon in Fort Lauderdale. He performs five surgeries on five patients simultaneously. The surgeon’s multitasking causes alarm, yet patients still choose him. Why is that? He’s an expert. He knows the procedure like the back of your hand and his.
So, if originators want to tap into the non-QM market, whether it’s self-employed investors or the second-lien space, become the master.
How non-QM lenders can expand referral networks
Like all professionals in the mortgage and housing industries, real estate agents ultimately want to help as many clients as possible. But not all Realtors understand or offer non-QM loans to their clients.
How can that benefit an originator? It’s simple. Non-QM products can help build relationships with the top Realtors in the market, alongside other advisors and professionals. The top 5% Realtors control over 90% of the market. Establishing relationships with those Realtors can give originators access to a wider network of opportunities. Originators will have competitive advantage against the competition as they serve specialized non-QM products to an underserved market.
Five steps to start 2025 strong
For originators that are ready to tap into the non-QM loan suite and target a wider network of underserved clients, here are five steps to tackle:
- Schedule training with Deephaven: Use Deephaven’s training resources to originate non-QM products.
- Focus on equity solutions: Understand and promote HELOCs and second liens to address borrower needs for cash flow improvement or home renovations.
- Target investors with DSCR products: Equip originators with the tools to tap into the growing investor market.
- Prioritize new construction loans: Address the housing supply gap with ground-up construction solutions.
- Build referral networks: Partner with top-performing Realtors and expand connections through investor networks, CPAs, and attorneys.
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