What are Non-QM Mortgages?
A non-qualified mortgage is a type of home loan available for consumers whose financial situation does not meet the requirements for a qualified mortgage. Non-QM loans are much easier to obtain than QM loans because they don't require borrowers to have as much cash in their bank accounts or assets as QMs do. However, non-QM loan rates tend to be higher and harder to find than their QM counterparts because they carry more risk for lenders.
What is a Non-QM Loan?
A non-QM loan is a mortgage that does not meet the minimum federal guidelines for qualifying for a mortgage.
Non-QM, or alternative or subprime mortgages, can be offered by any lender, including banks and credit unions. In fact, they are often preferred by consumers who have lower credit scores because they have higher rates and fees than traditional loans. Some of these lenders do not use automated underwriting software to assess your application (which makes them more expensive) because it allows them to evaluate your finances on a case-by-case basis rather than relying on computerized algorithms alone.
History of Non-QM loans
Non-QM loans, or subprime mortgages, originated in the 1970s and were designed to help borrowers with low credit scores or high debt loads obtain home financing. This type of mortgage was not regulated by federal guidelines as they are today; instead, they relied on state laws that could be more flexible when it came to loan qualification criteria. These types of loans were often referred to as "no doc" (no documentation) or "low doc" (low documentation) loans because they required less paperwork at closing than conventional programs.
Many people took advantage of this lack of regulation and ended up owing more money than their homes were worth—a phenomenon that would lead to the housing market crash in 2008 and subsequent recession we're still recovering from today.
Non-QM mortgages still do not have government backing but there are currently regulations in place to make sure any Non-QM borrower will be able to make their payments.
How to qualify for a Non-QM Mortgage
- You must have a non-QM lender.
- Your debt to income ratio is high.
- You are self-employed, or you receive 1099 income in lieu of W2 income.
In order to qualify for a non-QM mortgage, you will need to provide the lender with certain documents. These include proof of income, employment, assets and credit history (if applicable). You will also need to provide documentation for citizenship or legal status if applicable and proof of residence. This can be in the form of a driver's license or passport; however some lenders may require additional documentation such as utility bills or rental agreements. In addition to these items you will also need an appraisal of the home.
Why use a Non-QM Mortgage
If you have high debt or low credit and want to buy a home, Non-QM Mortgages may be the right choice for you. Non-QM mortgages are also a good fit for people who are self employed or rely on alternative income and need to use bank statements to prove eligibility.
A Non-QM Mortgage can be used to buy a home or refinance an existing mortgage.
The key takeaway is that, If you have good credit and/or a stable income, you should be able to qualify for a non-QM mortgage. If your credit score is below 600, check with the lender about their minimum score requirements.
If you don't have any credit or are new to the US, most lenders will still be able to help you qualify for a non-QM loan by using alternative documentation (like paycheck stubs) in place of proof of income.
Where can I find Non-QM Mortgages
The first step is to find a lender that will work with you.
The second step is to find a lender who will give you the best interest rate.
The third step is to find a lender who will give you the best terms on your mortgage.
And the final step is finding a lender that will give you an amount of money for your loan, which may or may not be different than what others are offering.
We offer a variety of Non-QM Mortgage products that are mortgage experts can walk you through today. If you are interest in a Non-QM mortgage for NOO or OO properties please contact 844-242-6656 to get started.
After reading this blog, you should have a better understanding of QM mortgages and some of the pros and cons of them. You may also realize that QM is not always the best option for your situation and that it might be time to look into non-QM mortgages.