If you have a unique income or a rocky financial past, you may have experience trouble reaching approval for a home loan. A non-qualifying mortgage, or “non-QM loan,” could be a solution.
These loans don’t meet the standards of government-backed loans such as VA loans and FHA loans. But they do allow many borrowers to secure the top-quality mortgages they need.
By delivering an affordable, attainable mortgage, a non-QM loan could be the secret weapon for your loan qualification.
What is a “Non-QM Loan?”
A non-qualified mortgage is a type of home financing that helps homebuyers who can’t qualify under the structured criteria of a qualifying loan.
They are useful for many types of borrowers. However, they are especially beneficial for the self-employed professionals, retirees, investors, business owners, and anyone else living on a unique or inconsistent income. They are also helpful for people who may not have a huge income but have a significant net worth. This net worth could be in the form of investment accounts, retirement accounts, or properties. Foreign nationals, who often find difficulty when qualifying for a loan, can also utilize a non-QM loan.
As an example, people who are self employed do not always have the documents required for qualifying mortgages. A non-QM loan, therefore, can provide a path to homeownership.
CFPD Standards and Non-QM Loans
Non-qualified mortgages don’t meet the standards set by the Consumer Financial Protection Bureau (CFPB). The don’t meet one or more of the specific requirements created by this organization, which includes rules for mortgage points and fees, prohibitions on unique features like interest-only payments, or limits on terms above 30 years. There are also limits on debt-to-income ratios, so if you have a large amount of debts compared to your income, you may struggle with a qualifying mortgage. Non-QM loans are outside of these requirements.
This is not to say that current non-qualified mortgages are similar to the loose lending practices that were part of the 2008 financial crisis. Before the “Great Recession,” many lenders, for reasons that included market competition and government pressure, were making risky loans that were problematic for the lending company, the borrower, and the nation as a whole. This is no longer the case, and current non-QM loans should not be mistaken for the high-risk loans that were made before the 2008 crisis; risky loans are still prohibited.
Non-QM Loans: What are the Standards for Qualification?
There are no uniform standards for non-QM loans. Each lending organization, essentially, can make their own choice on how they want to approach these loans. However, you can likely expect a lower credit requirement or a lower downpayment. Most importantly, you can use unique income sources for qualification.
Non-qualifying mortgages can take into account the value of your investment accounts, real estate holdings, or even the potential income you’ll generate after purchasing an investment property. This makes them incredibly versatile for numerous borrowers.
Some of the top benefits of a non-qualifying mortgage include:
- Unique income documentation
- Credit requirements can be more relaxed
- Investors can purchase more properties
Why a Non-Qualified Mortgage Can Be Your Secret Weapon
Helps You Get Around Low-Credit Problems
Low credit is an issue that impacts many different borrowers. For qualified loans and traditional financing, a low credit score, even if it’s not bad credit, could hold up your mortgage. With non-qualified mortgages, you may be able to get the loan you need even if your credit is not excellent.
The exact credit score you need will vary, and there are many other factors that impact your credit requirements. But it’s reasonable to say that with non-QM loans, your chance for securing a mortgage with a low credit score is much higher.
Helps You Purchase, Even with a Low Downpayment
Like credit scores, the downpayment requirement will vary. But if you are experiencing trouble getting a loan because you don’t have a large downpayment (or if you have been approved, but under imperfect conditions), a non-QM loan could be the best solution.
With these loans, you may be able to purchase a property with a downpayment that is much lower, allowing you to make a purchase and finally enjoy the benefits of homeownership.
Refinancing with Non-QM Loans is Available
Non-QM loans are often a great choice for borrowers who want to purchase a new home. But this is not the only use for these loans. When you want to refinance your loan, either to reduce the interest rate or lower the payment by extending the terms, you can do so with a non-qualified mortgage.
Traditional refinance and cash-out refinance are options for this loan program, allowing you to enjoy a better loan or utilize your built-up equity for home improvements, repairs, or any other necessary expense.
Flexible Interest-Only Payments Available
With an interest-only payment on a non-QM loan, you can enjoy an initial period where the payments are extremely low. For investors or borrowers in a financial transition, this can be a wonderful option that helps improve your monthly budget.
Can be Used for Various Purchases
These loans are extremely beneficial to borrowers of many types. Of course, they are useful for traditional homebuyers, those seeking to purchase a primary residence. But they can also be used for less-common purposes, such as second homes and investment properties.
In fact, it’s worth noting that non-qualifying mortgages are a particularly good option for investors, especially investors with numerous properties. Other loan programs may limit the amount of mortgage properties you can own, which slows your ability to build a large portfolio. With some programs, you may be limited to 10 or 12 financed properties. With a non-QM loan, you have, within reasons, a nearly limitless amount of possible properties.
Beyond investments, these loans can also be used for a second home, such as a property near work or a vacation property near your favorite ski resort, golf club, or beach.
Find the Support You Need for a Non-Qualified Mortgage
Contact our team today to apply for your non-qualified mortgage. Whether you have struggled with loan qualification or you want to purchase an investment property with a strong loan, these programs can help.
Work with an experienced loan professional and get the non-QM loan you need for a world-class property!
