Non-QM loans


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The Lowdown on Non-QM Loans...

The Lowdown on Non-QM Loans

What is a Non-QM Loan?

Self-employed individuals can find it especially challenging to qualify for a home loan. Even if you have the income to purchase a home, you may not necessarily qualify for a traditional mortgage. This is because mortgage lenders often require income information via tax returns, W-2s, or pay stubs. This is the type of documentation traditionally required for home loan approval. Since self-employed persons may not have these forms of income proof, they may be unable to obtain a Qualified Mortgage. However, even if you can't qualify for a loan the traditional way, your dream home is still within reach.

Non-QM stands for Non-Qualified Mortgage. These are loans for borrowers who may not meet the requirements of standard loan programs. Non-QM loans typically have a special income qualification. They are designed for people with unique income streams. Some examples would be individuals self-employed as an independent business owner, entrepreneurs, contractors, hospitality workers, retirees, actors, artists, etc.

A Non-QM loan does not meet the Consumer Financial Protection Bureau's lending requirements. Particularly their requirement to vet the borrower's income and set terms and conditions accordingly. This is why they are not considered to be Qualified Mortgages. However, just because they are not "Qualified Mortgages," that does not mean that these loans are risky or unsafe for borrowers. It simply means that their credit profile may not be a traditional one.

Non-QM loans are also more flexible in terms of credit. A Non-QM lender may qualify a borrower after a significant credit event. Examples include a foreclosure or bankruptcy

What is the difference between Qualified vs. Non-Qualified Mortgages?

A Non-QM loan uses alternative methods of income verification (instead of the standard income methods of verification of a QM loan) to help the borrower get approved for a mortgage loan. Non-QM loans are not guaranteed, or backed by FHA, VA, Fannie Mae, or Freddie Mac. A loan that meets QM requirements provides safe harbor for lenders against lawsuits from borrowers who default on their loan.

Who May Benefit from a Non-QM Loan?

Self-employed borrowers are often paid sporadically and have more than one stream of income. This can make it difficult to obtain a Qualified Mortgage. These individuals often try to use loans that are based on their bank statements instead of their tax returns.

Prime borrowers are often keen to take advantage of Non-QM loans. This is because they usually have great credit and are looking to take on a loan that may have interest-only payments. Prime borrowers may also have a higher-than-normal debt-to-income ratio. This can make them great candidates for Non-QM loans.

Near or non-prime borrowers who don't have enough credit, a prior bankruptcy, or distressed property sale within the last two years are often good candidates for Non-QM loans.

Borrowers with sizable assets and prime credit may decide on a Non-QM loan to maintain a positive cash flow rather than just buying the home in cash.

How Do Non-QM Mortgages Work?

Non-QM loans can fill the gap for homebuyers who don’t have the income proof they need to fit into the “Qualified-Mortgage box.” A Qualified Mortgage follows rules set by the CFPB and federal government. A Non-QM loan uses alternate methods of income verification to help a borrower get approved for a mortgage loan. Lenders can also use other features to help borrowers qualify for a loan. They can include a longer loan term and interest-only payments. Each mortgage lender will have specific terms and conditions for their loans, so always check your individual agreement.

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What a Non-QM Loan is Not

  • It is not a subprime mortgage - a subprime mortgage is a mortgage for borrowers with well-below-average credit scores
  • It is not a “stated-income” loan - stated-income loans did not require proof of the income amount that was stated on the loan application

What a Non-QM Loan is

  • A home financing solution for responsible borrowers with unique financial circumstances
  • A flexible home loan that covers a variety of consumer needs
  • An option for borrowers who recently have experienced bankruptcy or foreclosure
  • A loan that is available to foreign nationals
  • A loan that may be available for multiple properties

Common Types of Income Verification Methods Allowed for Non-QM Loans

Full Documentation (same as Qualified Mortgages)

One-Year Tax Return Program

  • Personal tax returns for the past year, including all schedules and attachments
  • Business tax returns for the same year with all schedules
  • Signed business Profit and Loss statement in many cases

6 and 12-Month Bank Statement Program

  • Options include personal or business statements

Asset Qualifier (purchase or rate-and-term refinance only, owner-occupied or second homes)

  • 60-day account history required
  • 100% of vested retirement for borrowers over 59 ½ years old
  • 70% of vested retirement assets if borrowers are under 59 ½ years old

DSCR – Investment Property

Benefits of Non-QM loans

  • Ideal for self-employed and for people with non-traditional financial circumstances
  • Alternative income verification methods accepted
  • Multiple fixed and adjustable loan options
  • Loan maximum as high as $2.5 million
  • Cash-out as high as $500,000
  • Second homes and investment properties may be eligible
  • A Non-QM loan allows you to diversify your investments. It maintains the liquidity of your assents instead of pouring all your cash into a real estate purchase
  • Mortgage interest payments with a Non-QM loan can be deducted each year on your income taxes. Consult a tax advisor for financial or tax advice.
  • Non-QM loans may further protect you from unexpected downturns in the market. This can keep you from losing a financial investment.

Non-Qualified Mortgage FAQs

Who should consider a Non-QM Mortgage?

Self-employed borrowers can be ideal candidates for a Non-QM loan. Often, they are paid intermittently and have multiple streams of income. They also can have difficulty documenting their income. This can make it challenging for them to obtain a Qualified Mortgage. These individuals typically turn to loans based on one-to-two years of bank statements as opposed to their tax returns.

Prime borrowers or those who are likely to make their loan payments on time and in full may want to take advantage of Non-QM loans since they usually have great credit but are looking to take on a loan that may have interest-only payments or who have a higher than normal debt-to-income ratio.

Other good candidates for Non-QM loans are near/non-prime borrowers. Also, borrowers who may be on their way to prime status but have suffered a past credit event. These can include a late payment, collection, short sale, charge-off, foreclosure, or bankruptcy within the last two years.

Borrowers with sizable assets and prime credit may decide on a Non-QM loan. This is to maintain a positive cash flow rather than just buying the home in cash.

What are some advantages of Non-QM Loans?

Serving the needs of self-employed borrowers and or people with non-traditional financial circumstances, Non-QM loans allow alternative income verification methods. They often offer multiple fixed and adjustable loan options. In addition, second homes and investment properties may be eligible.

A Non-QM loan means the borrower can stay liquid rather than pouring all of their cash assets into a real estate purchase, allowing them to diversify their investments. Furthermore, mortgage interest payments with a Non-QM loan can be deducted each year on income taxes. Consult a tax advisor for financial or tax advice.

What are the Non-QM Home Loan Options?

A Non-QM loan can be used for a rate-and-term refinance, a cash-out refinance, a new home purchase for owner-occupied or second homes.

Give us a call to learn more about how a Non-QM loan might be the right home financing solution for you.

Why a Non-QM Loan?

The main benefit of these loans is that they give you the ability to purchase or refinance a home without the documentation requirements of traditional mortgages.

Why a Non-QM Loan?

Your Home Loan Could Be Fully Funded 30 Days From Now

  • Fixed Rates

    Fixed Rates

  • Adjustable Rates Mortgage (ARM)

    Adjustable Rates
    Mortgage (ARM)

  • Conforming Loans


  • Jumbo & Super Jumbo Loans

    Jumbo & Super
    Jumbo Loans

  • FHA, VA, & USDA Loans

    FHA, VA, & USDA

  • Terms from 5 to 30 Years

    Terms from 5 to
    30 Years

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