Non-Qualified Mortgage

Non-Qualified Mortgage

If your income or credit history falls outside the strict guidelines set by traditional mortgage loan programs, a non-QM loan may be worth considering.

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PIONEER MORTGAGE FUNDING INC./ non qualified mortgage

What's A Non-Qualified Mortgage?

non-qualified mortgage (non-QM) is a type of home loan that doesn't meet the standards set by the Consumer Financial Protection Bureau (CFPB) for qualified mortgages (QMs). These standards are designed to ensure borrowers are able to repay their loans and prevent predatory lending practices.

Here are some key things to know about non-QM loans:

  • Who they benefit: They are intended for borrowers who have difficulty qualifying for a traditional mortgage due to factors like:
    • Income: Self-employment, inconsistent income, or difficulty documenting income.
    • Debt: High debt-to-income ratio.
    • Credit: Recent credit issues like bankruptcy or foreclosure.
  • Flexibility: They offer more flexible requirements compared to QMs, such as allowing alternative forms of income verification or offering options like interest-only payments (though these can be risky).
  • Downsides: They often come with:
    • Higher interest rates and fees: Due to the perceived increased risk of the borrower defaulting.
    • Stricter terms: Shorter loan terms or larger down payments might be required.

It's crucial to carefully consider the pros and cons of a non-QM loan before deciding if it's the right choice for you. It’s highly recommended to understand the implications and explore all your options.

A non-qualified mortgage (non-QM loan) doesn't conform to the consumer protection provisions of the Dodd-Frank Act. However, applicants whose incomes vary monthly or those with other unique circumstances may qualify for these types of mortgages.

For example, a lender may not offer you a qualified mortgage if you have a DTI of more than 43%. Or, if you have erratic income and don't meet the income verification requirements set out in Dodd-Frank and required of most lenders, you may not be offered a qualified mortgage.

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Difficult To Close
Non-QM Loans Are Unregulated
Sub-Prime Borrowers

Difficult To Close

Risk Factor

Non-QM loans are difficult to close and a waste of time.

Solution

Non-QM loans can be as easy to close as Agency loans. It all depends on the lender.

Non-QM Loans Are Unregulated

Risk Factor

Non-QM loans are unregulated.

Solution

It’s a regulatory requirement that every non-QM borrower provide documentary proof of their ability to repay.

Sub-Prime Borrowers

Risk Factor

Today’s non-QM borrower looks like the sub-prime borrower before the housing crisis.

Solution

The average FICO for our non-QM borrowers is 742 versus a score in the 500s back before 2008. With an average down-payment of over 20%, borrowers now have “skin in the game”.

Medical Payments Coverage

Risk Factor

A guest at your annual Fourth of July barbecue trips on the steps between your deck and the lawn fracturing his wrist when he falls against a stone retaining wall.

Solution

Medical payments coverage can cover the medical costs if a visitor is hurt on your property, regardless of liability.

Property Coverage

Risk Factor

You’ve lit several candles — which unintentionally start a small fire in your apartment.

Solution

Property coverage under your renters policy may help if personal property like a sofa and a bookcase are damaged by fire.

Who benefits from Non-QM loans?

Non-QM loans are convenient for people who have found their dream home but were refused a home loan under qualified-mortgage standards. A non-qualified mortgage may provide an interim lending solution until you meet standard mortgage guidelines and can refinance to a conventional loan.

Non-QM lenders offer options for:

Self-employed borrowers

While standard loan programs need tax documents to prove your self-employed income, non-QM lenders may offer bank statement mortgages without mandating filed tax paperwork.

Borrowers with a high net worth

Some lenders allow you to split the total cash balance in an asset account by a lender-chosen duration and use the result for qualifying income. This is known as an asset depletion loan.

Borrowers investing in multiple rental units

Non-QM loans may be a good option for investors who own more than ten financed investment properties — the limit for most conventional lenders. In addition, other non-QM lenders provide debt-service coverage ratio loans for real estate investors. 

Borrowers with recent bad credit

You may be qualified for a non-QM loan one day after completing a bankruptcy or foreclosure. However, you typically must wait two to seven years after a substantial credit event for standard loan programs.

Borrowers who are foreign nationals

A foreign national is a citizen of another country who lives in the U.S. for short periods for work or vacation. Non-QM loans for foreign nationals may not need proof of U.S. income, credit, or a Social Security number.

Borrowers who want an interest-only payment option

Sporadic income-earners could benefit from an interest-only loan that permits lower payment options during periods of the year when they earn less.

Should I get a Non-QM Loan?

A non-QM is a fine idea when you have the income to make steady, on-time loan payments but cannot get a qualifying mortgage.

Imagine that you own a contracting firm. Some months, your income is high, and others, only a little goes into your bank account. You cannot know precisely how much you will earn yearly. But you don't have trouble paying your bills, your credit score is high, and you have cash in the bank. Even though your finances are healthy, you won't be able to tick the "income verification" box needed for a qualified mortgage. That's where a non-QM comes in.

Suncoast Mortgage Firm LLC.

Our lending solutions use the perfect hybrid of human-driven insights and technical prowess to process loans faster and significantly reduce costs.

PHONE

(813) 599-3533

E-MAIL

tony@suncoastmortgagefirm.com

ADDRESS

8270 Woodland Center Blvd
Tampa, FL 33614

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Website Disclaimer : 

Effective Date: 9/1/2021
All loan approvals are conditional, not guaranteed, and subject to lender review of all information. A loan is conditionally approved when the lender has issued an approval in writing, but until all conditions are met, a loan cannot be funded. Specified rates may not be available for all borrowers. interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Suncoast Mortgage Firm LLC. is an Equal Opportunity Mortgage Broker headquartered in Tampa, Florida. This licensee is performing acts for which a mortgage broker license is required. Suncoast Mortgage Firm LLC. is licensed by the Florida Office of Financial Regulation, NMLS# 1936558. Suncoast Mortgage Firm LLC. is approved to originate Conventional, FHA, VA, and USDA loans, and has the ability to broker such loans to Conventional, FHA, VA, and USDA approved lenders. Suncoast Mortgage Firm LLC. is not acting on behalf of or at the direction of HUD/FHA or the VA.

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