And just like any other loan, non-QM loans have their pros and cons. Where to get Non-QM loansīecause of the financial risk involved in providing loans that are not backed by federal government programs, non-QM loans are less widely available. The lending process is the same apart from the loan documents needed.
The truth is, similar to qualified mortgages, today’s non-QM loans have their own set of guidelines. There has been a misconception that Non-QM loans are bad loans and borrowers should avoid them. This is often the case with:īorrowers with high assets and low income Even a 40-year loan term! Should You Get a Non-Qualified Loan?Ī non-QM loan is a good option when you have a stable income that allows you to make regular, on-time mortgage payments but can’t meet a qualifying mortgage requirement. Minimum credit scores for non-QM loans can be up to 100 points lower than qualified mortgages and feature more flexible terms, which are not available in most qualified mortgages. Bank statements and a list of assets are often enough for loan approval. You don’t need to submit W2s, tax returns, or employment verifications. They also require less formal documentation compared to other types of loans. Non-QM loans make mortgages more accessible to a broader market. It should be noted that non-QM loans are not government-backed or part of Fannie Mae or Freddie Mac. If you can’t provide the aforementioned things, a non-qualifying mortgage is worth exploring. Your loan fees and points can’t be more than 3% of the loan amount. Your debt to income ratio should be 43% or lower.įees. This is the amount of your monthly income that is paid toward existing debts. You must provide pay stubs, W2s, and tax returns to verify your income.ĭTI. To better understand what a non-qualifying loan is, let's review the list of requirements for a traditional mortgage: They feature more flexible eligibility requirements on DTI, credit scores, and loan amounts. Non-qualified loans are designed to help homebuyers who don’t meet the standard requirements to qualify for a mortgage. Let’s explore the non-QM loan option and see if this is the right choice in your situation. The good news is that those who don’t meet the criteria for a qualified mortgage can be offered a non-qualified mortgage instead.
Non-QM loans are typically priced higher than QM loans.īorrowers who are offered nonQm loans may find that interest rates are higher than qualified mortgages.Buying a home is part of the American dream, but what if you don’t qualify through traditional means? This is an issue that self-employed and other non-W2 workers often face since their proof of income and employment differs from what lenders typically require. QM loans are intended to assist homebuyers with unique circumstances qualify for a mortgage, which may include self-employed borrower’s with income that is difficult to document, borrower’s whose primary source of income is from investments, borrower’s with multiple financed properties (i.e.
Non-QM loans may also include certain loan features that are typically not available on QM loans, such as interest only, 40 year terms, and pre-payment penalties. Like QM loans, lenders must make a good faith determination of the borrower’s ability to repay the loan, but may expand its underwriting guidelines to include non-traditional documentation. QM loans cannot not include balloon payments, interest only, or negative amortization, and cannot include pre-payment penaltiesĪ non-qualified mortgage (non-QM loan) may include one or more features that falls outside the specific requirements of a qualified mortgage. Qualified Mortgages are required to meet certain underwriting standards, limitations on pricing, and thresholds on the points and fees the lender may charge. Your lender will likely ask about income, credit history, assets, employment and expenses. Lenders are required to make good-faith efforts to establish the borrower’s ability to repay the loan before finalizing the mortgage. A qualified mortgage (QM loan) is a mortgage loan that meets the Dodd-Frank Act consumer protection requirements.
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