If you work in the cannabis industry, obtaining financing options for the home of your dreams may have felt unattainable until now. The uncertainty of approaching lenders who may not be willing to provide mortgage options to people whose major income comes from this industry—even though legal, is genuinely daunting. But thankfully, it’s mostly an information problem that can be rectified.
The biggest challenge to be tackled is the need for accurate information about obtaining residential mortgages in the cannabis industry. Where legal cannabis operations are concerned, there’s a lot of smoke and mirrors, and misinformation can cloud your path to homeownership. We’re here to clear the haze and share the real, unfiltered facts.
Beacon Lending can Help Secure Your Cannabis Mortgage
We’ve seen far too many false facts, inaccurate statements, and mistaken assumptions, and we get it; it can be confusing navigating this path. So, if you’re wondering how the cannabis business and house loans could coexist, look no further. We’ve helped numerous people just like you realize their goal of buying a house when they didn’t think it was feasible.
Beacon Lending is your trusted guide through the maze of the cannabis industry and mortgages. We specialize in helping cannabis industry employees like you secure residential mortgages, and we’re ready to share our expertise.
The cannabis industry is expected to produce more employment than the venerable manufacturing industry, according to Forbes and Business Insider. The cannabis business has created over 20,000 jobs in Colorado alone, not to mention the favorable influence on unemployment statistics. With these types of figures, we’re excited to help even more industrious employees.
The Challenges of Obtaining a Cannabis Mortgage Loan
Obtaining a traditional mortgage while working in the cannabis sector might be difficult. However, the appropriate mortgage lender who is familiar with cannabis business income can help to speed up the home-buying process.
Each lender has different regulations when it comes to financing those in the cannabis sector. Unfortunately, most lenders, particularly federally regulated banks, believe that income from a state-legalized cannabis company is too dangerous. As a result, they are more likely to reject your application based on your source of income.
If one lender considers your income ineligible, it does not imply that other lenders would. Different lenders have different requirements, and some are more experienced with cannabis-related revenue and are more eager to collaborate with industry professionals.
Okay, let’s dive into the nitty-gritty of why getting a mortgage when you work in the cannabis industry can be a bit like navigating through a dense cloud of uncertainty.
Federal vs. State Legality of Cannabis Mortgage
The legal status of cannabis varies from state to state, and the federal vs state legality of cannabis is at the center of the debate. While your state may have embraced legalizing the cannabis industry, the federal government still classifies cannabis as illegal. This legal dissonance can make things a little hazy when it comes to your mortgage prospects.
Stigma Faced by Cannabis Industry Workers
Now, let’s talk about stigma. For years, cannabis industry workers have faced stereotypes and discrimination. But there are some positive developments on the horizon: public opinion is changing, and more states are legalizing cannabis. This means additional career prospects in research, development, testing, cultivation, production, and sales.
The impact of federal insurance on traditional loan types
This is the biggest knot in the process. Traditional mortgage loans like FHA, VA, and USDA loans are federally insured. And many retail banks are federally insured too. When your income comes from the cannabis industry, it’s often viewed as illegitimate by association. This sticky situation can put a dent in your home-buying plans.
The need for specialized solutions for Cannabis Mortgage
But wait, don’t lose hope just yet! We’re here to tell you that the dream of homeownership is now within reach, thanks to some recent changes in guidelines. There are specialized solutions available for cannabis W2 employees. To give you an idea, here are a few options we can offer:
- Conventional mortgages
- Down payment assistance programs
- Low down payment options
Eligibility for Cannabis Mortgage Loans
Now that we’ve uncovered the mysteries of cannabis mortgages let’s dive into the eligibility criteria. After all, you can’t board the homeownership train without a ticket.
There are standard requirements that people working in the cannabis industry must meet to qualify for a conventional mortgage. First, ensure that you meet the following criteria:
- Loan duration
- Bank statements
- Proof of legal income
- A credit score of 620 or more
- Private Mortgage Insurance
- State the property type: Single family, townhouse, condo, or 2-to-4-unit property
- 3% minimum down payment
The role of being a W2 employee
The key to unlocking your path to homeownership as a cannabis professional often lies in the type of employee you are. If you’re a W2 employee in the cannabis industry, you’re in luck! You may qualify to purchase a home with a conventional mortgage. Being a W2 employee provides a level of stability and consistency that lenders appreciate. It’s like having a steady guide on your hike to homeownership.
Ownership limitations (less than 25% ownership)
Now, here’s a little twist in the tale. While being a part of the cannabis industry is a plus, you need to watch your ownership stake. Typically, you should have less than 25% ownership in the cannabis company to be eligible for these specialized mortgage programs. If you’re a 1099 employee, don’t fret – the ownership stake doesn’t apply to you. So, if you’re thinking of owning a piece of the cannabis pie while getting a piece of the homeownership pie, it’s crucial to strike the right balance.
Location-based eligibility (legalized cannabis states)
The green light to your cannabis mortgage journey is often determined by your geographical location. You have to live in a state where cannabis is legal. Unfortunately, if you live in a state that has yet to legalize, you may encounter even more challenges. Location is important, but it’s a barrier that more states are overcoming, making the goal of homeownership more feasible.
Experience and income requirements
Like any other mortgage, there are certain experience and income requirements. You generally need a minimum of two years of experience working in the cannabis industry. This requirement helps demonstrate your commitment to the field and your reliability as a borrower.
Standard underwriting criteria for mortgages
Even if you tick off the aforementioned cannabis-related boxes, you must still fulfill the usual mortgage screening standards. Lenders will look at your credit score, work history, income, debt-to-income ratio, and other criteria, it’s all part of the process.
Cannabis Mortgage Lenders
If you’re wondering why you should go for the qualified lender route instead of hunting for a mortgage on your own, think of it like this: would you hike through the wilderness without a map, or would you prefer an experienced guide who knows the terrain like the back of their hand?
What sets cannabis mortgage lenders apart is their knowledge of the specialized options available for cannabis industry employees. They’re not limited by the same constraints as traditional lenders. So, if you’re worried about federal insurance or FDIC overlays, a cannabis mortgage lender knows the secret passages and shortcuts to help you find the right mortgage.
Access to lenders without FDIC insurance overlays
One of the perks of working with a cannabis mortgage lender is their ability to connect you with lenders that don’t have FDIC insurance overlays. This means you won’t have to navigate the federal roadblocks that can complicate your homeownership journey. It’s like having a private bridge to your dream home, avoiding the traffic jams.
Factors Influencing Interest Rates
Now, let’s talk about the numbers – because your mortgage interest rate can make a big difference in your financial journey.
the magical numbers that can significantly impact your monthly payments aren’t set in stone. They’re influenced by various factors, and in the world of cannabis mortgage loans, things aren’t as hazy as they may seem.
Loan amount and terms
The size of your loan and the terms you select are important factors in determining your interest rate. Smaller loans with shorter durations often have lower interest rates, but bigger loans with longer terms may have somewhat higher rates. It all comes down to choosing the best match for your budget.
Fixed vs. adjustable interest rates
Fixed Rates: Fixed rates stay consistent over the life of your loan like a well-marked trail. They provide stability and predictability, which is great if you like knowing exactly what to expect each month.
Adjustable Rates: These are more like off-road adventures. They usually begin with cheaper rates, but they may vary over time, leading to fluctuations in your monthly payments. It’s risky, but if you time it properly, you could save money.
Credit scores and credit history
Your credit score and credit history are the key to unlocking favorable interest rates. Think of them as your trusty compass on this homeownership journey. A high credit score and a clean credit history can result in cheaper interest rates, saving you money over time. Consider restoring your credit history before applying for a mortgage if it is a little rough around the edges.
Down payment requirements
Like investing in top-notch hiking gear, the more you can put down upfront, the better. A larger down payment can often lead to a lower interest rate. So, if you’ve got some extra cash stashed away, don’t be shy about putting it to good use.
Private Mortgage Insurance (PMI) considerations
If you’re not able to make a substantial down payment, you might have to contend with Private Mortgage Insurance (PMI). It’s like a mandatory piece of equipment for certain hikes. PMI can increase your monthly costs, but don’t worry; some mortgage programs offer options with no PMI. It’s all about finding the right fit for your budget and situation.
Options for Cannabis Mortgage Loans
So, now that you have the scoop on interest rates, let’s explore the various mortgage options available to you in the cannabis industry.
Conventional mortgage options
First up, we have the trusty conventional mortgage. It’s like the classic hiking trail that many homebuyers choose. With a conventional mortgage, you can secure a loan with competitive interest rates and flexible terms. If you meet the eligibility criteria we discussed earlier, this might be your path to homeownership.
Low down payment options
Good news – you don’t need a pile of cash under your mattress to buy a home. You can often get started with as little as a 3% down payment. And here’s an even sweeter deal – some programs offer no Mortgage Insurance (MI) requirement. It’s like getting a discount on your adventure gear.
Down payment assistance programs
If you’re still thinking your down payment might be a hurdle, there are down payment assistance programs out there. It’s like finding a friendly trail guide who offers you a helping hand when you need it. These programs can provide you with the extra boost you need to take those first steps toward homeownership.
Cannabis Mortgage Lender in Colorado
In a nutshell, things are changing in the cannabis industry where it concerns employees and home financing. The cannabis industry is growing, creating jobs, and shedding its stigma, and homeownership is no longer a distant dream. The world of cannabis mortgage loans is filled with options, just like a diverse hiking trail system. By considering these factors that affect interest rates and exploring the various mortgage options, you can find the perfect path to your dream of homeownership.
And what’s best? Beacon Lending is here to help you! With specialized mortgage options, you, as a cannabis professional, have more opportunities to achieve the American dream. Federal and state disparities may still create some challenges, but these obstacles are slowly crumbling. Contact us today and we will show you how being a W2 employee, keeping your ownership stake in check, and living in a legalized cannabis state can all play in your favor.
About the Author
Brian Quigley has been in the Denver mortgage industry since 2003. Customer satisfaction has been his top priority while guiding clients through the home loan qualification process. He is proficient in all types of mortgage financing including FHA/VA, Conventional, USDA, Jumbo, Portfolio, 1031 Exchanges, Reverse Mortgages, Refinancing, Construction loans, and FHA 203K loans.