The Requirements for Non-QM Mortgages

Nontraditional Mortgages
If you're looking for an alternative mortgage to the popular government-backed loans, a Non-QM loan might be right for you. Here, we'll discuss what is required by the borrower in order to receive a non-qualified mortgage loan.
Published on
July 16, 2024
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Introduction

Non-QM loans make it possible for home buyers with unique financial circumstances to qualify for a mortgage. Non-QM loans are not subject to the same standards and requirements that traditional FHA, VA or USDA loans require.

Non-QM loans make it possible for home buyers with unique financial circumstances to qualify for a mortgage.

Non-QM loans make it possible for home buyers with unique financial circumstances to qualify for a mortgage. Non-QM loans can be used to refinance an existing mortgage, or they can be used to purchase new property. There are many reasons why a borrower may need a non-qualified mortgage, such as:

  • A borrower has high debt-to-income (DTI) ratios that exceed the limits set by Fannie Mae and Freddie Mac
  • A borrower's credit score is too low because of credit card balances or other factors
  • The maximum loan amount available through Fannie Mae/Freddie Mac is less than what the borrower needs
Acceptable income documentation for Non-QM Mortgages

Non-QM loans require a different set of documentation than a conventional loan. Some of those documents include:

  • Verification of Income
  • Income Tax Returns
  • Pay Stubs
  • Bank Accounts Statements
  • Business Documents
Homebuyers can be self-employed, business owners or freelancers
  • Self-employed homebuyers, business owners or freelancers may be required to provide a copy of their last two years of income tax returns to qualify for Non-QM loans
  • Business owners and freelancers must provide two years' worth of business tax returns that show the borrower is actively engaged in the business.

If you are self-employed, you may also be required to provide a personal guarantee from your spouse if they have an ownership interest in any other real estate assets. You will need to fill out a mortgage application and get pre-approved. Mortgage lenders will then check your debt to income ratio, profit and loss statements, credit report, bank statements, business expenses and other documentation to verify you qualify for the home loan.

Unconventional loan repayment for Non-QM Loans

For non-QM loans, there are several ways to structure your payments. These include:

  • Balloon Payments - This is a payment that comes due at the end of the loan term. It generally has a high interest rate but is often less than a normal monthly payment.
  • Interest Only Payments - This option allows you to pay only the interest on your loan for some period of time. You will still owe all of your principal at the end of that period, which means that your monthly payments will increase later on.
  • Longer Loan Payments - In order to pay the loan back in full, a lender might allow you to make smaller payments for a longer amount of time then what would be required for QM loan.
  • Negative Amortization - When you make a payment, it could be lower the interest. The difference is added to your outstanding balance. This allows you to make a smaller payment.
Conclusion

The non-QM loan market provides home buyers with a variety of options to purchase their dream home. The right option depends on your financial situation and credit history. If you want to explore your options, contact us today for more details about our non-QM mortgage program.

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