Here is a compilation of some of the questions we get asked most often.
- What are some of the known restrictions that must be imposed by those banks who are willing to lend to marijuana industry workers?
Marijuana industry workers are held to the same standards that are prescribed to any other potential borrower. There are always going to be stipulations about things like debt-to-income ratio, credit score, and down payment. For this industry, however, there are just a few additional factors to consider, based on your level of involvement in the industry.
Any W-2 earner is treated in the exact same manner, regardless of the industry. If this applies to you, and you are interested in exploring your mortgage options, contact us to get started.
For anyone who is self-employed in this industry, however, it can get a bit tricky. If you have ownership of 25% or more of the marijuana-based business, lenders consider you to be self-employed, and Fannie Mae will not allow you to use this income to qualify. The good news is that there are alternative/portfolio lenders that will allow you to use your self-employed income. As the industry continues to grow we anticipate that more of the lenders will come into the market.
- What (or Who) is Fannie Mae?
Fannie Mae is a nickname for The Federal National Mortgage Association. This agency falls into the category of “Government Sponsored Enterprises” (or GSEs, for short), which means that it is a government-sponsored organization, but it is not truly part of the government.
Fannie Mae plays a critical role in the mortgage industry, and as such, this agency has a significant impact on lending practices. Fannie Mae and a similar agency known as Freddie Mac buy mortgage debt from lenders, providing liquidity for further lending and stability in the marketplace.
The key takeaway from all of this is that Fannie Mae will allow you to use income derived from the Marijuana industry in order to qualify for a home loan, but due to overlays, most lenders will not. Freddie Mac does not permit the use of this income when evaluating your borrowing eligibility.
- What are lender overlays?
Overlays are additional guidelines that large and small lenders alike add to Fannie Mae and Freddie Mac’s existing guidelines in order to close loans with them. They do so to mitigate risk. Ultimately, individual banks and lenders are the ones issuing the loans, so they want to minimize the chances that anything will compromise repayment of the loan by imposing their own rules on top of Fannie and Freddie’s guidelines.
- Why do most banks avoid lending to employees of businesses in the marijuana industry?
While marijuana is legal in certain parts of the United States, it still has not become legal on a federal level. Because financial institutions are governed by federally-sponsored agencies, many are unsure how to operate under these conflicting guidelines. These institutions are yet to devise internal policies surrounding the practice of lending to employees of marijuana-based businesses, and many choose to avoid the risk altogether.
The companies themselves also face this challenge in their efforts to procure financing for their businesses.
- In California, despensaries are considered non-profit, and there are no “owners” or profit sharing, etc. I do receive W2 income from the dispensary/non-profit organization, but I am the CEO and President of the Board. Would my income qualify?
Yes and No. Unfortunately, Fannie Mae will only accept W2 income if no other position is held by the borrower in the non-profit organization. However, Portfolio lender may consider this income and allow it to be used to qualify for a mortgage.
- What is a portfolio lender?
DEFINITION of 'Portfolio Lender'
A company that not only originates mortgage loans, but also holds a portfolio of their loans instead of selling them off in the secondary market. A portfolio lender makes money off the fees for originating the mortgages and also seeks to make profits off the spread (difference) between interest-earning assets and the interest paid on deposits in their mortgage portfolio.