The real estate and mortgage industries are seeing rapid changes. The way people buy and sell property is changing. So too is the way people apply and qualify for mortgages. “Non-QM lending,” a term that describes many different mortgage products, are becoming more popular, and we are proud to be leading non-QM lending in 2022!
Understanding “Non-QM Lending”
To understand non-QM lending, you should first understand the term “QM.” This acronym stands for “qualified mortgage,” and it essentially designates mortgages that are within the limits, standards, and regulations of government-supported loans.
Qualified mortgages are a category of loans that carry certain features which make them more secure, stable, and reliable. They have built-in features that increase the likelihood they will be paid off and not go into foreclosure.
From a borrower’s perspective, QM loans have important requirements, requirements that essentially verify your ability to repay through a specific process. QM loans need to meet the “ability-to-repay” standard.
From a lender’s perspective, QM loans have a variety of benefits. Most importantly, they come with government guarantees, protections that support the lender if the mortgage goes into default. Essentially, the government says that if a mortgage loan meets their specific standards but goes into default, they will repay the lender.
QM loans are not allowed to have certain features that are believed to increase risk to borrowers. QM loans, for example, cannot feature balloon payments, terms longer than 30 years, or high debt-to-income ratios.
Non-QM loans are simply outside of these government requirements. Non-QM loans may have longer terms, or use a unique income source to qualify the mortgage. They may be structured differently than a typical mortgage, or they may be for larger amounts than allowed by government-supported home loans.
They are, to put it lightheartedly, the motley weirdos of mortgage lending. They are the options when other options fail, the mortgages for people with unique incomes, unusual jobs, and uncommon goals.
The unique, however, is becoming common. This is why we are proud to be leading non-QM lending for 2022 and beyond!
The Different Types of Non-QM Lending for 2022
To understand non-QM lending, it helps to look at a few specific examples. All of the mortgage products listed below can fall into the category, although this list is far from comprehensive…
Qualified mortgages need to be under a certain amount, which can change. These amounts are determined by the Federal Housing Finance Administration, which sets the lending limits for government-supported financing, including FHA loan, Fannie Mae loans, and VA loans.
Currently, the base limit is $647,200, although this limit can increase in high-cost areas. Take our county of San Diego, which has a QM (conforming loans) limit of $879,750 for a single-family home.
That amount will certainly by a lot of excellent houses in San Diego and the surrounding area, but it will also leave out many properties. A search for properties in San Diego County on realtor.com shows, at the time of this writing, a total of 4,796 single-family homes, condos, and townhouses. But if we narrow our search to homes priced at $900,000 or more, there are still over 1,700 listings. A loan within the conforming limits will leave out many homes in San Diego, which is why non-QM jumbo loans may be needed for many buyers. (This little example compare loan limits to listing price, which is not a fair apples-to-apples comparison, but it does make the point.)
Because of the price of homes in California, this is likely the most common non-QM lending we currently see in our office. This could be the most common type of non-QM lending for 2022.
Banks Statement Loans
People are earning incomes in unique ways. In 2022, more people may leave the typical work-a-day lifestyle and join the ranks of self-employed professionals, entrepreneurs, and gig workers. These people rarely earn a consistent income; instead they may earn $900 one week, $500 the next, and $5,000 the following week. This makes qualifying for an income slightly more complicated, as these borrowers don’t have the typical documents used in most mortgage applications.
However, they may be able to use bank statements for loan qualification. Bank statement loans are fairly simple, you just need to bring at least two months of bank-account information to the lender, who can then use this information for the purpose of qualification. Other information may be needed (credit scores, debt totals, etc.), but a bank statement will form the foundation when you apply for a loan.
You don’t have to have a large income to have a high net worth. Many people, people who would classify as millionaires, may have a small income (if any income at all) yet own millions of dollars in assets. These assets can include properties, equipment, jewelry, and artwork. Most commonly, however, these assets will include retirement accounts.
Retirement accounts, such as 401(k)s and Roth IRAs, can be used as income towards a loan. The lender will have a specific system for using the total amounts to calculate your qualifying income, but retirement accounts and other assets are important if you have a high net worth and need a non-QM loan.
An interest-only loan allows you to enjoy lower payments through an initial period, which usually lasts about five to ten years. At the start of the mortgage, you will only pay on the interest, which means you have a much lower payment than a typical loan. However, you are not building equity during this period, and you will eventually have larger payments on the loan.
These loans are good options for people who can expect an increase in pay over the next five to ten years. Recent college graduates, for example, could benefit from these loans.
Get the Non-QM Loan You Deserve!
From loans that use 1099 documents to financing for a unique condo or townhouse, we can help with all of your financing needs. Contact our team to learn how we can find the right non-QM loan for your specific purchase! We are proud to be leading the pack for non-QM lending in 2022, so contact us today!