Are Cannabis Workers Able to Get Mortgages? A Guide

It's meant to help anyone in the cannabis industry figure out how to buy a home, even when the rules aren't clear.

Can Cannabis Workers Get a Mortgage With Federal Laws Against It?

Getting a mortgage as a cannabis worker is tricky because state and federal laws don't agree. Many states allow growing and selling cannabis, but it's still illegal under federal law.

This difference makes it hard for people working in the cannabis industry, whether they're self-employed or working for a company, to get a mortgage.

Banks and mortgage companies mostly follow federal rules, which means money made from the cannabis industry can cause problems.

If you're trying to get a mortgage and your down payment is less than 20%, you'll need to check with mortgage insurance companies to see if they'll cover a loan with income from cannabis.

Fannie Mae, a big name in mortgages, will accept income from cannabis if you're a W2 employee but not if you're self-employed.

On the other hand, Freddie Mac, the USDA, and the FHA say no to any money made from cannabis. The FHA accepts only money made legally and reported on your taxes. Since the federal government sees marijuana as illegal, this kind of income doesn't count.

The VA also doesn't accept money made from marijuana businesses because of federal law, but it's okay with money from the legal hemp industry. This shows how the federal government differentiates between types of cannabis businesses.

If you're in the cannabis industry and looking for a mortgage, local community banks in states where cannabis is legal might be more willing to work with you. These banks could be a good option for getting a loan.

Different mortgage companies and investors have their own rules about cannabis money. Some are okay with it under certain conditions, while others don't accept it because of the federal ban or the mismatch between state and federal laws.

In short, while it's hard for cannabis workers to get a mortgage because of how the federal government views cannabis, there are some options. You might need to look for specific lenders or alternative financing methods more open to your income source.

How Do Different Mortgage Agencies Handle Income From the Cannabis Industry?

Given the legal complexities, each agency has developed its guidelines, reflecting the federal stance on cannabis while also navigating state laws where cannabis is legal.

Below is a breakdown of how these guidelines vary by agency.

Fannie Mae

Fannie Mae does not explicitly state its position on cannabis income in its guidelines. However, the industry consensus is that Fannie Mae accepts W2 income from employees in the cannabis industry.

This acceptance does not extend to self-employed individuals in the same industry, indicating a nuanced approach to cannabis-related income based on employment type.

Freddie Mac and USDA

Freddie Mac and the USDA have a clear stance: They do not permit any income from the cannabis industry. This policy reflects a strict adherence to federal law, under which cannabis remains illegal, regardless of state laws that have legalized cannabis to varying degrees.

FHA

The Federal Housing Administration (FHA) specifies that for income to be considered in mortgage applications, it must be legally derived and properly reported on tax returns.

Given federal law's classification of marijuana as a Schedule I controlled substance, the FHA does not recognize income from the cannabis industry as legally derived. Therefore, individuals employed by state-legalized marijuana businesses are ineligible for an FHA-insured loan.

VA

The Department of Veterans Affairs (VA) does not permit income derived from marijuana companies due to the federal ban, even if such companies are permitted at the state level.

However, income from the federally legal hemp industry may be considered. This distinction underscores the VA's effort to comply with federal laws while acknowledging the legal nuances within the cannabis sector.

What Challenges Do Self-Employed Individuals in the Cannabis Industry Face When Applying for a Mortgage?

Next, let's dive into the specific challenges self-employed individuals face in this sector when applying for a mortgage.

The hurdles stem largely from the clash between state laws that legalize cannabis and federal regulations that do not, impacting the financial and mortgage sectors significantly.

The Challenge of Federal vs. State Law

Self-employed cannabis entrepreneurs encounter a unique obstacle due to the federal classification of cannabis as a controlled substance.

This discrepancy complicates their ability to prove their legal and stable income, which is a key factor in mortgage approval.

Since financial services, including mortgage lending, are governed by federal laws, income derived from a federally illegal source is often viewed skeptically by lenders.

Mortgage Insurance and Secondary Market Concerns

For self-employed individuals in the cannabis industry, obtaining mortgage insurance (MI) can be particularly challenging.

If the loan-to-value (LTV) ratio of their mortgage is over 80%, lenders typically require MI to protect against default.

However, MI providers may hesitate to cover loans involving cannabis-related income due to legal uncertainties and the risk of federal action.

Additionally, mortgages intended for sale in the traditional secondary market face hurdles, as buyers of these loans may reject them due to the source of income.

Agency Guidelines and Investor Policies

While Fannie Mae has been observed to accept W2 income from cannabis industry employees (though not explicitly stated in their guidelines), the situation is different for self-employed individuals.

Their income is scrutinized more thoroughly due to the lack of a clear, employer-issued W2 form. This makes it more difficult to meet the documentation and legality standards set by mortgage agencies.

Furthermore, the stance of other agencies like Freddie Mac, FHA, and the VA adds layers of complexity, with outright prohibitions on cannabis-related income in some cases, further narrowing the options for self-employed individuals seeking mortgage approval.

Self-employed cannabis workers must navigate these challenges with careful planning. They may need to look towards alternative financing options, such as community banks in cannabis-legal states, which might be more accommodating.

Are Alternative Financing Options Available for Those With Cannabis Income Seeking a Mortgage?

Given the constraints within the traditional mortgage lending framework due to federal laws against cannabis, those earning their livelihood in this industry must look beyond conventional lenders to secure financing for a home.

Community Banks and Credit Unions

Community banks and credit unions located in states where cannabis is legal may offer more flexibility for borrowers with cannabis income.

These local financial institutions often have a deeper understanding of the local market and may be more willing to accommodate borrowers involved in legal state industries, including cannabis.

They might provide loans directly or serve as an outlet for referrals or loan sales as an investor.

Private Lenders

Private lenders are another potential source of mortgages for cannabis workers. Unlike traditional banks, private lenders are not bound by the same federal regulations and may have more discretion in accepting income from the cannabis industry.

However, loans from private lenders often come with higher interest rates and fees, reflecting the increased risk they assume by diverging from federal guidelines.

Portfolio Lenders

Portfolio lenders, who keep and service their loans rather than selling them on the secondary market, may also be more open to working with cannabis industry income.

Since these lenders do not need to conform to the guidelines of secondary market purchasers, they can create their lending criteria. This can include accepting cannabis-related income under certain conditions.

Hard Money Loans

Hard money loans are another option, typically used for investment properties but sometimes for primary residences.

The property secures these loans and relies less on the borrower's income verification, which can benefit self-employed individuals. However, hard money loans usually come with higher interest rates and shorter terms like private lending.

Seller Financing

Seller financing is a more unconventional route where the home's seller acts as the lender. This arrangement can be particularly advantageous if the seller is open to receiving income from the cannabis industry and agrees to finance the purchase.

It eliminates the need for traditional mortgage lenders but requires legal guidance to ensure the agreement is sound and binding.

Cannabis Industry Mortgage FAQ

Navigating the mortgage process as someone involved in the cannabis industry comes with unique challenges and questions. This FAQ aims to address common concerns and provide clear, straightforward answers.

Can Cannabis Workers Qualify for a Mortgage?

Yes, cannabis workers can qualify for a mortgage, but it depends on the lender and the type of income (W2 vs. self-employed).

Fannie Mae accepts W2 income from cannabis workers, though self-employed income is more complex due to federal regulations.

What Are the Types of Cannabis Income?

There are two primary types of cannabis income: income earned by self-employed individuals in the cannabis industry and income earned by W2 employees of cannabis producers or distributors. Each type faces different challenges in the mortgage application process.

How Do Federal Laws Affect Cannabis Workers' Mortgage Applications?

Federal laws, which classify cannabis as a controlled substance, create significant hurdles. Many lenders, governed by federal regulations, may reject income from cannabis due to its illegal status at the federal level.

Are There Mortgage Insurance Considerations for Cannabis Income?

Yes, if the Loan-to-Value (LTV) ratio is over 80%, you'll need to check with mortgage insurance (MI) partners to see who will provide MI for loans with cannabis income, which can be more challenging to secure.

Can Self-Employed Cannabis Workers Get Mortgages?

Self-employed cannabis workers face more scrutiny due to the federal classification of cannabis. While not impossible, it's more challenging, and such applicants may need to explore alternative financing options.

What Alternative Financing Options Are Available?

Alternative options include community banks in states where cannabis is legal, private lenders, portfolio lenders, hard money loans, and seller financing. These options may offer more flexibility for cannabis income.

How Does Fannie Mae Handle Cannabis Income?

Fannie Mae is known to accept W2 cannabis income for mortgage applications, though it does not officially document this policy. Self-employed cannabis income is not explicitly addressed and may be subject to lender discretion.

What About Freddie Mac and USDA?

Freddie Mac and the USDA do not permit any income generated from the cannabis industry for mortgage applications due to its illegal status under federal law.

What Does the FHA Say About Cannabis Income?

The FHA states income must be legally derived and properly reported on tax returns. Since cannabis is a Schedule I controlled substance federally, income from the cannabis industry is generally not eligible.

How Do VA Loans View Cannabis Income?

VA loans do not permit income from marijuana companies due to federal restrictions. However, income from the federally legal hemp industry may be considered for a VA loan.

Bottom Line

Navigating the mortgage process as a cannabis industry worker is undeniably complex due to the clash between state legalization and federal prohibition of cannabis. While significant hurdles exist, particularly for self-employed individuals, understanding the landscape is key.

It's clear that options exist, from pursuing lenders like Fannie Mae that accept W2 cannabis income to exploring alternative financing routes such as community banks, private lenders, or seller financing for those with self-employed income.

The essential takeaway is that while challenges abound due to the federal stance on cannabis, informed choices and strategic planning can pave the way to securing a mortgage in the cannabis industry.

Always consider consulting with a financial advisor or mortgage professional who understands the intricacies of cannabis income to navigate this complex terrain effectively.