Non-QM Loans
Overview:
If you're in a situation where your income or credit history doesn't meet the strict requirements of traditional mortgage loan programs, you might want to explore non-QM loans as a viable financing option. Non-QM stands for a non-qualified mortgage, and understanding how these loans work can help you determine if they're the right choice for you.
Non-QM loans are mortgages that don't meet the requirements set by the Consumer Financial Protection Bureau (CFPB) to be considered qualified mortgages. Qualified mortgages adhere to the CFPB's "ability to repay" rule, which ensures that lenders assess your financial situation and establish loan terms that you're likely to be able to repay.
The Highlights:
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Risky features: To help you qualify for a non-QM loan, lenders may include one or a combination of the following features:
Interest-only payments: With this option, you only need to pay the interest accrued each month, without reducing the loan balance. -
Balloon payments: If your non-QM loan includes a balloon payment, you'll make a larger-than-usual payment at the end of a specified term.
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Longer loan term: Non-QM lenders may offer loan terms longer than the standard 30 years.
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Higher-priced loans with upfront points and fees: Due to the higher risk involved, non-QM loans often come with higher interest rates, annual percentage rates (APRs), upfront fees, and points that aren't permitted on qualified mortgages.
Flexibility with income or credit history:
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While standard qualified mortgages require you to provide tax returns, W2s, and pay stubs to verify your income, non-QM lenders may use your bank statements as an alternative income calculation method. Additionally, non-QM loans offer programs that allow you to borrow shortly after major credit events like bankruptcy or foreclosure, without waiting the typical two to seven years required by qualified mortgage loan programs.
UNDERSTANDING THE DETAILS
SECTION 1
Understanding One-Time Close Construction Loans
Who can benefit from non-QM loans? Non-QM loans are particularly useful for individuals who have found their dream home but were denied a loan under the qualified-mortgage standards. These loans can provide a temporary lending solution until they meet the requirements for traditional mortgages and can refinance.
Non-QM loans cater to various types of borrowers, including:
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Self-employed individuals: Non-QM lenders may offer bank statement mortgages that don't require extensive tax documentation. Instead, they evaluate your income based on 12 to 24 months' worth of personal or business bank statements.
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High net worth borrowers: Some lenders allow you to use the total cash balance in an asset account to determine qualifying income through an asset depletion loan. This approach divides the balance by a predetermined time period, generating additional monthly qualifying income.
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Real estate investors: Non-QM loans can benefit investors who own more than the typical limit of 10 financed investment properties imposed by conventional lenders. Some non-QM lenders offer debt-service coverage ratio loans, where the rental income from the new property covers the monthly payment, eliminating the need for additional income.
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Borrowers with recent credit issues: Non-QM loans can be an option as soon as one day after completing a bankruptcy or foreclosure, while traditional loan programs may require a waiting period of two to seven years.
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Foreign nationals: Non-QM loans for foreign nationals may not require proof of U.S. income, credit history, or a Social Security number, making them accessible for individuals who live in the U.S. temporarily for work or vacation.
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Borrowers seeking interest-only payments: Interest-only loans can benefit those with irregular income, allowing for lower payments during periods of lower earnings. However, it's important to note that the payment may increase after the interest-only period ends, which could pose challenges when repaying the loan.
CONCULSION
Non-QM Loans
In conclusion, if you find yourself outside the stringent guidelines of traditional mortgage loan programs, non-QM loans can provide the flexibility and options you need to achieve homeownership. While they may come with additional risks and higher costs, non-QM loans can be a valuable temporary solution until you meet the qualifications for a conventional mortgage.
If you're considering a non-QM loan, it's essential to research and consult with mortgage professionals who specialize in non-QM loans to guide you through the process and help you make an informed decision.
Don't let strict mortgage guidelines hold you back from your dream of owning a home. Take the first step and explore non-QM loans today.