Non-Qualifying Mortgage Loans (Non-QM)
If you haven’t heard of a “QM” loan, or Non-Qualifying Mortgage Loan, you might be interested to know how they can be used to your advantage, even if only for a short period of time to qualify for a much needed loan, at what could be a less than ideal time in life.
A Non-Qualified Mortgage (or Non-QM loan) is any home loan that does not comply with the Consumer Financial Protection Bureau’s existing rules on Qualified Mortgages (QM). Usually this type of alternative mortgage loan accommodates people who are not able to prove they can make the mortgage payments.
In the simplest of terms, Non-QM loans are loans for people that cannot qualify for any other mortgage programs by being able to prove their income in a traditional manner.
Non-QM Pros
- Can be used to purchase or refinance a property.
- Can be used as cash out deals for clients with large amounts of debt that can be causing a poor credit score.
- People with as low as a 500 FICO score can qualify using bank statements. The lender, in most cases, will require two years including all pages, front and back.
- The lender can allow up to 55% debt to income ratio.
- The better the credit score the higher the loan to value the lender will allow on the program.
- Requires no mortgage insurance.
- The underwriting can be more flexible if the deal makes sense. This puts the client in a better position on a refinance. (Mortgage underwriting is what happens behind the scenes once you submit your application. It is the process a lender uses to take an in-depth look at your credit and financial background to determine if you are eligible for a loan.)
Non-QM Cons
- Higher interest rate.
- Loans will take longer to underwrite than more traditional loans. It may also have more conditions.
In general, no non-QM loan should be entered into without an exit strategy. For instance, this should be used as a short-term loan solution use if and when need be. Once your mortgage has been obtained with a non-QM process, it is best to clean up whatever credit issues or documentation processes which existed preventing a traditional mortgage so that in six months to a year (or longer if need be) you’re in a position to refinance into a more traditional loan program.
Other Non QM Program Points
- Primary Residence and Second Homes
- Credit Underwritten Based on LTV, FICO, and Liquidity
- Employment Not Required
- Debt-to-Income (DTI) Not Calculated
- Asset Seasoning 30 Days
- Only Front Page of Account Statements Required
- Loan Amounts Up to $3 Million
- Up to 80% LTV
- FICO Beginning at 640
- Reserves from 3 Months
So if you are considering getting a mortgage loan and believe your bad credit issues, documentation or down payment ability will prevent you from obtaining a mortgage, simply put, you could be wrong, and there may be several loan products that you do qualify for. You should always seek the professional advice of a local mortgage consultant and/or broker who will be in a better position to determine if there is one of very many mortgage products that can be used to get you approved and into your new home. This will allow you to secure the home you want, stop paying rent, and/or worry about getting a better rate down the road – when your credit issues are resolved or your documentation better positions you to do so.
