Income from Recreational Marijuana: Your Guide to Mortgage Approval

Marijuana leave on cash

Across the nation, the call for legalized recreational marijuana is gaining momentum. As more and more states make pot legal for recreational use, it’s creating an industry that is employing hundreds of thousands of people, ranging from minimum-wage employees to seven-figure annual earners.

But no matter what the income, there are issues with mortgage qualification.

According to information from New Frontier Data, legal marijuana is one of the fastest-growing industries in the United States, with a market worth $7.2 billion in 2016. The sector is expected to see sales over $24 billion by 2025. By 2020 alone, the report says, there could be almost 300,000 people working directly in the marijuana industry.

But, despite the massive numbers and growing national acceptance, there is still a disconnect between the banking, lending, and mortgage sectors and the marijuana industry. Businesses, for example, have faced challenges with banking, and some have had to operate on a cash-only basis. In some cases, they have been forced to keep unsafe amounts of physical cash at their premise simply because banks will not create accounts for businesses tied to the marijuana industry.

To help businesses, one credit union even tried to serve the marijuana industry by creating accounts that would be available for marijuana-related industries. However, their accounts were denied approval by the Federal Reserve Bank, which cited a host of concerns that created too much risk to the banks. The credit union sued and eventually won approval to serve the industry, but this example demonstrates the still-present hesitation that many in the lending and banking world still have when it comes to marijuana.

Businesses aren’t the only ones affected by this disconnect. Potential homeowners whose income comes partially or fully from marijuana sales often experience trouble securing an affordable mortgage. The marijuana industry may be perfectly legal and legitimate in your state, but you may still experience trouble when it comes to mortgage approval.

Fortunately, there are ways to get approved, but you first need to understand why mortgage lending can be difficult when you have an income from recreational marijuana.

Why is There Still a Disconnect Between the Mortgage and Marijuana Industries?

Banks and lenders answer to the federal government. No matter what the laws say in California, Colorado, or Massachusetts, marijuana is still illegal at the national level. However, people who work in the industries where it has been legalized are under the same employment rights and regulations as any industry because they earn a living without breaking the law.

But because marijuana is still illegal at the federal level, and because the mortgage and banking industries answer to federal authorities, the industry still remains under a cloud of illegitimacy, albeit one that is thinning.

There is also the fact that this is a relatively new industry. Banks and lenders simply don’t have the vast amount of data or experience lending to people who work with recreational marijuana. Yes, we have forecasts and predictions, but who really knows what will happen with the marijuana industry in the future. The market could start to stagnate (although that seems unlikely), you could see rapid expansion of legalization laws that help the industry grow, or we could see the federal government try to tighten controls on the industry. Although signs are positive for the industry, there’s a lot of unknowns, and if there’s one things lenders can’t stand, it’s uncertainty.

How to Get Mortgage Approval with Income from Recreational Marijuana

Small single-family house with green landscaping,
Using income from recreational marijuana could help you secure an affordable mortgage.

Fortunately, there are ways that you can secure a mortgage with an income from recreational marijuana. Whether you are a self-employed business owner or a wage-earning employee, when you have the right information you’ll increase your chances of approval, just like any other mortgage application.

Must Be in a State Where Recreational Marijuana is Legal

The first, and probably the most obvious, is that you must live in a state where recreational marijuana is legal. According to information from Governing.com, a platform that covers politics and policy, there are currently eight states that allow for the recreational use of marijuana:

  • Alaska
  • California
  • Colorado
  • Maine
  • Massachusetts
  • Nevada
  • Oregon
  • Washington

If you live in one of these states and work in the recreational marijuana industry, you meet the first requirement.

Will States Be Added to the List?

In the future, other states may be added to the list. While many debates have stagnated and died in committee, discussions on recreational use could come back in Illinois, Arizona, Delaware, and other states. In Michigan, voters will have a chance to vote on recreational marijuana during the November 2018 election. If it passes, workers in this state could experience many of the same difficulties.

Must Have a Two-Year History in Industry

If you live in an appropriate state, you can move on to the next requirement: a two-year history. To qualify for a mortgage using income from recreational marijuana, you will need to prove that you have worked in the industry for at least two years.

For employees, this means you must be a W2 employee. You will likely need to contact your employer for information, and bringing all financial records related to your employment will help your chances of approval.

If you are self-employed, the same two-year requirement applies. You will need to show that you have successfully maintained a business in the industry, and you will need to show financial and tax records to increase your chances of loan approval.

Must Be Able to Verify Income

Finally, to get the approval you will have to demonstrate your income. Lenders will need to see income information for anyone in any industry, so this is really no different than income from a “traditional” and well-established industry. By demonstrating your income through financial records, bank statements, and other documents, you give lenders greater assurance that you can meet the demands of a mortgage loan.

Helping You Secure the Right Loan for Your Needs

If you earn an income from recreational marijuana and need help with mortgage approval, let the team at San Diego Purchase Loans help. We have a strong understanding of the mortgage industry, and we can ensure that your application has the best chance at approval.

CONTACT SAN DIEGO PURCHASE LOANS TODAY!

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I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online