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How to get a mortgage working in the cannabis industry
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Getting a mortgage and buying a home while working for a state-legalized marijuana business can be challenging due to the legal issues surrounding the cannabis industry.
Most lenders don't count cannabis income when you apply for a mortgage. As a result, lenders may reject your mortgage application, indicating that they cannot approve you for a loan based on your current income.
Rejections can be disheartening, but don't lose hope. Some lenders accept cannabis income. In this article, I'll explain how you can get approved for a mortgage and buy a home while employed by a cannabis business.
Why do mortgage lenders reject the cannabis industry?
Most banks and mortgage lenders reject cannabis income due to the federal classification of marijuana as a Schedule I controlled substance.
While laws in some states permit cannabis use, it remains illegal at the federal level. This discrepancy creates uncertainty and potential legal consequences, especially for federally-regulated mortgage lenders.
As a result, home buyers relying on cannabis income encounter resistance from cautious lenders. These lenders typically omit income derived from the cannabis industry from mortgage applications, making it harder for you to get approved for a mortgage.
Omitting cannabis income from your mortgage application increases your debt-to-income ratio and reduces the amount you can afford to borrow, making it harder to find a suitable home within your budget.
In states where cannabis is legal for recreational or medical use, find a local mortgage lender who is familiar with the industry and open to working with individuals employed by state-legalized marijuana businesses.
For example, NewCastle Home Loans counts cannabis income and we offer mortgages to people working for cannabis businesses in Illinois, Michigan, and Florida. Book some time to talk to a mortgage expert about your plans to buy a house.
What types of mortgages accept cannabis income?
There are several different mortgage products and they fall into two broad categories:
- Government-backed mortgages: Offered by private lenders and insured or guaranteed by the FHA, VA, or USDA
- Conventional mortgages: Offered by private lenders and not backed by a federal agency
Government-backed loans are more strict regarding acceptable sources of income when qualifying for a mortgage. On the other hand, conventional mortgages are more flexible.
Generally, you're more likely to be approved for a conventional mortgage if you receive income from a cannabis-industry job.
Can I get an FHA, VA, or USDA mortgage while employed by a state-legalized marijuana business?
Employees of state-legalized marijuana businesses face challenges in qualifying for FHA, VA, and USDA mortgages.
These government-backed mortgage programs have strict guidelines, and they view income from the cannabis industry as ineligible due to the federal classification of marijuana as a Schedule I controlled substance.
Lenders approve or deny FHA loans, VA loans, and USDA loans based on the program guidelines. Because the guidelines prohibit cannabis income, lenders will omit it from your loan application, which can be a significant hurdle in the home-buying process.
Although you're eligible for government-backed FHA, VA, and USDA mortgages while working in the cannabis industry, you can't use cannabis-related income to get approved.
Marijuana's federal classification is a significant barrier for would-be homebuyers relying on income from the cannabis industry. Government-backed mortgages, designed for first-time buyers with low down payments and credit scores, are off the table.
Without these loan options, you may need a larger down payment and a higher credit score for a conventional loan, delaying or even preventing you from achieving your goal of homeownership.
If a government-backed mortgage is unavailable, maybe you qualify for a conventional loan. Get pre-approved for a home loan today and find out.
Can I get a conventional mortgage while employed in the cannabis industry?
Getting a conventional mortgage while employed in the cannabis industry can be tricky. However, the right mortgage lender, experienced with cannabis industry income, can streamline the home-buying process.
Each lender has its policies regarding lending to individuals in the cannabis industry. Unfortunately, most lenders, especially federally-regulated banks, consider income from a state-legalized marijuana business too risky. As a result, they're more inclined to deny your application based on your income source.
If one lender deems your income ineligible, it doesn't mean every lender will. Different lenders have varying criteria, and some are more familiar with cannabis-related income and have a greater willingness to work with individuals in the industry.
The good news is that cannabis industry employees buying or refinancing homes in Illinois, Michigan, and Florida can rely on NewCastle Home Loans for conventional mortgages.
With a conventional mortgage, you can buy a house with only 3% down at the same low interest rate we offer all our customers.
First, get pre-approved for a mortgage. We verify your income upfront so you feel confident about making an offer to buy a home. Then, we guide you along the path to homeownership, making sure everything goes smoothly.
Can I get a mortgage if I'm self-employed with an ownership interest in a cannabis business?
Having an ownership interest in a state-legalized marijuana business complicates the mortgage approval process.
Most lenders approving conventional mortgages for cannabis business employees deny cannabis business owners. The self-employed are typically ineligible, even when they can afford the monthly payments on a salary—without self-employment income.
Steve works as a cannabis grower who pays him a base salary, enough to qualify for the mortgage. However, he reported a 5% ownership stake in the company on his tax return, Schedule E and Schedule K-1.
Although Steve didn't receive self-employment income, the lender denied his loan application. His qualifying income was ineligible because he is self-employed.
When applying for a mortgage, be honest about your employment in the cannabis industry. Provide all necessary documentation related to your income upfront. Mortgage lenders typically check your IRS tax transcripts before closing to see whether you are self-employed.
NewCastle Home Loans will use cannabis income to approve your mortgage application when you:
- Buy or refinance a property in Illinois, Michigan, or Florida
- Report it on a W-2 or 1099 tax form
- Have no ownership stake in the cannabis business
Unfortunately, you have fewer mortgage options when you are self-employed in the cannabis industry. If you're self-employed, check with specialized lenders, state banks, and local credit unions for loan options.
What are the requirements for a cannabis mortgage?
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:
- Credit score: 620 or higher
- Property type: Single family, townhome, condominium, or 2-to-4-unit property
- Down payment: 3% minimum
- Loan amounts: $150,00 to $726,200
- Prove your income is from a state-legalized marijuana business: Provide recent paystubs and W-2 statements confirming you can repay the loan. You cannot have an ownership stake in the cannabis business.
- Verify you have enough cash to close: Send a bank statement, gift letter, or other documents showing you can cover the down payment and closing costs.
Remember, NewCastle Home Loans currently lends to cannabis workers in Illinois, Michigan, and Florida.
Get approved for a cannabis mortgage, step-by-step.
When you get pre-approved by NewCastle Home Loans, one of our loan decision-makers verifies your financial information up front. This way, you feel confident about buying a home.
Follow our 3-step plan to get approved for a cannabis mortgage.
- Apply online: Check credit, upload income documents, and import bank statements.
- Get your pre-approval letter: We verify your financial information the same day and send you a verified mortgage pre-approval letter confirming that you're ready to buy.
- Close in 2 weeks: Make an offer to buy the perfect home. After the seller accepts your offer, get ready to close.
Buying the perfect home starts with a verified mortgage pre-approval. Get yours today so you know what to expect.
Mortgage denial over cannabis income–what can I do?
If a mortgage lender denies your application due to cannabis income, here are three steps you can take:
- Add a co-signer: A mortgage co-signer is someone who applies for a mortgage with you but who won't live in the home. A co-signer with a more traditional income can give you the boost you need to get approved for a mortgage.
- Find a different property: Adjust your expectations and consider a less expensive property that aligns better with your financial situation.
- Talk to a cannabis-friendly lender: Speak with other lenders with different criteria for accepting cannabis income. NewCastle Home Loans, for example, is open to working with individuals in the cannabis industry, and we have experience in dealing with this income type. We’re proud to help cannabis industry homebuyers by providing stellar service and lower rates and fees.
Laws and regulations surrounding cannabis are evolving. Guidelines for government-backed loans and income from the cannabis industry could change soon. Feel free to comment on this topic below.
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