Twenty-nine states and the District of Columbia have already legalized medical marijuana yet the federal government remains adamant in keeping the drug’s illegal status. The continued conflict in policies and legalities is now causing an array of conflicts among businesses, and workers, including the housing and mortgage sector.
No to cash
Marijuana seems to be boosting local real estate markets where it is legal. Yet, those in the cannabis business are finding it hard to acquire homes with their cannabis income.
Workers and employees of cannabis companies are getting paid in cash because banks don’t want to establish deposit relationships with an industry that still in the grey areas where legality is concerned. Now, when these workers attempt to acquire financing products with their cash income, lenders double back and raise their eyebrows.
Under the law, lenders still have to remain compliant to federal rules in originating and underwriting loans. One of these rules is to establish a borrower’s ability to repay the loan. However, with cash incomes, there is no absolute, no guarantee.
“If [the information] is not verifiable because of the type of business they are in, then that’s not a loan we’re going to be able to transact,” Senior Vice President of Angel Oak Mortgage Services Tom Hutchens said.
This does not mean, however, that there are no programs that can accommodate these borrowers. In fact, two of the most common federal guarantee programs offer terms that do not specifically block borrowers in the cannabis business.Getting the loan you need is just one click away.
The VA home loan program
Backed by the US Department of Veterans Affairs, VA mortgages cater to veterans and active military service members and reservists. It offers 100 percent financing without the need for income and asset verification.
Under the VA mortgage rules, the lenders are only required to ensure that the borrower or loan applicant has a stable and reliable source of income.
The USDA home loan program
Designed for borrowers in the rural areas, this loan program aims to help low-to-moderate income borrowers in the rural gain access to affordable housing.
Just like the VA, it offers total financing with competitive interest rates. There is also no policy regarding loans to people involved in the legal cannabis business.
One lender, Evergreen Home Mortgage, successfully originated some loans for marijuana workers and sold them to government service enterprises Fannie Mae and Freddie Mac. These said workers didn’t have equity or any ownership interest in the cannabis business. It remains unclear, however, how many of these loans were originated and if additional sources of income were considered during the underwriting process.
The nonQM alternative
When it comes to underwriting unconventional loans, or those that typical traverse qualified mortgage boundaries, most people easily think about Non-QM loans. No stable income source? Get a nonqualified loan. Worried about damaged credit? There is always a nonQM option.
Yet, even these bold lenders are reluctant to deal with borrowers sporting cash incomes. As Hutchens iterated, these lenders still need to establish the ability-repay rule in order to protect their own investments and interests. Cash income is easily a deal breaker even in the NonQM book.
As long as state and federal regulations remain at odds, there is far hope for resolve when it comes to cannabis and mortgages.Click to See the Latest Mortgage Rates»