Non-QM lenders – Non Qualified Mortgages
Over a decade ago, many mortgages defaulted because the borrowers could no longer afford the mortgage payments. The increase in foreclosures was in part due to a high number of mortgages which helped the borrowers to initially purchase the home, but long term proved to create financial difficulty for those homeowners. Today, Non-QM lenders have changed their offerings to provide alternative financing options that are safe.
In 2014, the CFPB (Consumer Financial Protection Bureau) created the Qualified Mortgage Rule. This rule created guidelines for lenders which required them to verify the borrower’s ability to repay the mortgage, and to provide mortgage products that reduced risk for both the borrower and lender. Today, any mortgage that does not adhere to the requirements for a qualified mortgage is considered to be a Non-QM loan.
What is a Non-QM Loan?
A Non-QM loan is for individuals who cannot meet the basic requirements needed for qualified mortgage. Non-QM loans may have higher fees than a qualified mortgage, they may have interest only or balloon payments, and may allow for a higher debt to income ratio.
Non-QM loans are also for borrowers who have a solid income and credit history, but are looking for alternative mortgage solutions other than what the local bank may offer. The Non-QM loans are for the following individuals:
Types of Non-QM Loans
These are just a few examples of the types of loan programs that Non-QM lenders may offer:
- Bank statement loans
- Mortgages without tax returns
- Asset depletion loans
- ITIN loans
- Interest only mortgages
- Super jumbo mortgages for very large
- High DTI mortgages
- Mortgages under an LLC
Contact us and we can help you to find a mortgage no matter what your needs are.
Who are Non-QM Loans For?
Non-QM loans are for the following individuals or scenarios below. These are just a few examples so if you feel you cannot qualify for a conventional mortgage, then contact us and we can help with your loan options.
- Self-employed who cannot qualify using tax returns
- People who have high liquid assets but low monthly income
- People who need a very large loan amount or luxury home financing.
- Those who need a mortgage without a 2 year work history.
- Real Estate Investors
- Foreign nationals
Qualified Mortgage Requirements
To fully understand what a non-QM loan is, you first need to know what is needed to meet the basic requirements of a qualified mortgage.
- Cap on lender fees – The total lender points and fees cannot exceed 3% of the loan amount.
- The borrower’s ability repay the loan – Every qualified mortgage must meet the ability to repay rule (see below).
- Cap on the DTI (debt to income) ratio at 43% – Most qualified mortgages have a cap on the debt to income ratio of 43%. However, changes to the guidelines are now permitting up to a 50% DTI at the lender’s discretion.
- No high-risk loan features – no qualified mortgage can have risky features such as negative amortization or interest only, or balloon payments.
- Loan Terms Greater than 30 years – Some lenders may offer a 40 year fixed mortgage for example. This would not be a qualified mortgage.
If you would like to see if you qualify for a mortgage, complete this form and we will help you to determine whether you can get a qualified or a non-qualified mortgage.
Ability to Repay Rule
The ability to repay rule requires the lender to verify the following when evaluating and underwriting the loan application:
- The borrower is currently employed and preferably for at least two years
- Monthly verified income is sufficient to make the mortgage payments
- The DTI ratios do not exceed the maximum of 43%-50%
- The borrower has enough liquid assets to cover the down payment, closing costs, and reserves.
- The borrower has a stable credit history with no recent bankruptcies or foreclosures
If you are unable to meet the ability to repay requirements listed above, then non-qm lenders will help to purchase your home or to refinance.
Pros and Cons of Non-QM Loans
The following are the pros and cons or advantages vs disadvantages of a non-QM loan.
- Larger loan amounts permitted
- Some lenders do not require you to have a job
- Investment properties are allowed
- No PMI
- Loan can be in the name of an LLC
- Interest only option available for lower payments
- Mixed use properties can be financed
- Higher lender fees
- Interest rates are slightly higher
- Pre-payment penalties for investment properties
- Higher reserves required
These are just some of the things to consider when contacting Non-QM lenders to weigh your mortgage options.
Best Non-QM Lenders
These are some of the best Non-QM lenders in the industry right now. We work with some of them and keep a close eye on the changing guidelines. Some lenders will offer programs that others will not. The rates these lenders offer are also not the same.
- First National Bank of America
- Carrington Mortgage Services
- Citadel Servicing
- Athas Capital
- Axos Bank
Let us help you to determine which one is the best option for you by completing this form with just some basic loan scenario information. Then, we will get back to you immediately with your best option.
Why are interest only loans considered non-qm loans?
Interest only loans are Non-QM loans because of the risk involved for both the borrower and lender. It the borrower is making just interest payments, then the principal balance is never paid down. If the housing market declines, there would be little equity in the home leaving the potential for both parties being under water.
Why are negative amortization loans considered non-qm loans?
Negative amortization loans are Non-QM because they often result in payments that are lower than the minimum interest amount accrued each month. This means the loan balance is actually increasing over time. In the early 200’s, many homeowners walked away from their homes because they owed more than what the home was worth.
What are the non-QM mortgage rates?
You can expect the interest rates for a non-QM mortgage to be slightly higher than a qualified mortgage or conforming loan.
What credit scores are required for a non-QM mortgage?
There are non-QM lenders who will allow for credit scores as low as 500 FICO. However, some lenders have been raising their credit score minimums lately. If you have bad credit, we can help you to find the right lender for you.
Do mortgage brokers offer non-QM loans?
Mortgage brokers can help with non-QM loans if they are partnered with the right lenders. Mortgage brokers will apply to be an approved broker for a direct lender. If that lender offers non-QM loan programs, then the mortgage broker will have access to them.