Conventional Loan Programs

Non-QM Loans

 

What is a non-QM loan?

 

Qualified mortgages are a category of home-purchase loan that includes requirements to protect lenders and borrowers from too much risk. The QM loan designation was created under the Dodd-Frank Act, passed in 2010 after the housing and subprime mortgage crisis. The requirements for a qualified mortgage have evolved since then, but they remain based on the assessment of a borrower’s ability to repay while limiting risky loan features.

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Non-QM loans, unlike qualified mortgages, cannot be insured, backed or guaranteed by government-sponsored enterprises such as Fannie Mae, Freddie Mac, or the Federal Housing Administration. This means that they are not considered as safe investments for buyers of mortgage-backed securities on the secondary market.

 

 

What are the underwriting guidelines for Non-QM mortgages??

 

Non-QM mortgages have more flexible underwriting guidelines compared to traditional Qualified Mortgages (QM). This allows for borrowers with unique financial circumstances or those who may not fit into the strict guidelines of a QM loan to still qualify for a mortgage. Non-QM lenders may consider factors such as cash reserves, income from non-traditional sources, and assets in addition to the traditional factors of credit score and debt-to-income ratio. These flexible guidelines can open up the possibility of homeownership to a wider range of borrowers, making Non-QM loans a great option for those who may have been denied a traditional mortgage in the past. Additionally, Non-QM mortgages may have less strict requirements on documentation, which can also make the loan application process more manageable for borrowers. Overall, the underwriting guidelines for Non-QM mortgages provide more opportunities for borrowers to qualify for a mortgage, even if they don't fit the mold of a traditional QM loan.

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Some examples include:

• Alternative forms of income verification: Non-QM lenders often offer alternative methods of verifying a borrower's income, such as bank statements or liquid assets, which can make it easier for borrowers with nontraditional or fluctuating sources of income to qualify.

• Flexible underwriting guidelines: Non-QM loans often have more flexible underwriting guidelines than QM loans, which can make it easier for borrowers with unique financial circumstances to qualify.

• Lower credit score requirements: Non-QM lenders may have lower credit score requirements than traditional lenders, which can make it easier for borrowers with lower credit scores to qualify for a mortgage.

• Higher debt-to-income ratios: Non-QM loans may allow for higher debt-to-income ratios than QM loans, which can make it easier for borrowers with high levels of existing debt to qualify for a mortgage.

• More flexible documentation requirements: Non-QM lenders may have more flexible documentation requirements than traditional lenders, which can make it easier for borrowers to provide the necessary documentation to qualify for a mortgage.

• Jumbo loans: Many non-QM lenders offer jumbo loans that are higher than the conforming loan limits set by government-sponsored entities such as Fannie Mae and Freddie Mac.

• Nonprime loans: Non-QM loans are also known as nonprime loans, which are designed for borrowers who have a higher risk of default or financial instability.

• ITIN borrowers: Non-QM lenders also offer loan programs for borrowers who have Individual Tax Identification Number (ITIN)

• Bank-statement loans: Non-QM lenders also offer bank-statement loans, which are based on the borrower's income as reported on their bank statements, rather than traditional income documentation.

• Stated income, verified asset (SIVA) loans: Non-QM lenders also offer SIVA loans, which are based on the borrower's stated income and verified assets, rather than traditional income documentation.

• Borrowers with high debt-to-income ratios: Non-QM lenders also offer loans for borrowers with high debt-to-income ratios, who may have difficulty qualifying for a traditional mortgage.

• Real estate investors: Non-QM loans are also suitable for real estate investors, who may not have regular income or have a high debt-to-income ratio.

• Foreign nationals: Non-QM lenders may also offer loan programs for foreign nationals, who may not have a credit history or traditional income documentation in the United States.

• Self-employed borrowers: Non-QM loans are also suitable for self-employed borrowers, who may have difficulty providing traditional income documentation.

• Retirees: Non-QM loans are also suitable for retirees, who may have difficulty providing traditional income documentation.

• Business owners: Non-QM loans are also suitable for business owners, who may have difficulty providing traditional income documentation.

• Entrepreneurs: Non-QM loans are also suitable for entrepreneurs, who may have difficulty providing traditional income documentation.

• Gig-economy workers: Non-QM loans are also suitable for gig-economy workers, who may have difficulty providing traditional income documentation.

• Contract workers: Non-QM mortgages offer more flexible underwriting guidelines and alternative methods of verifying income, making them a good option for contract workers who may have inconsistent income or difficulty providing traditional documentation.

 

Who can benefit from a non-QM loan?

 

Non-QM loans provide an alternative option for borrowers who do not meet the qualifications for a qualified mortgage. These loans offer specialized products with varying underwriting guidelines, making them accessible to a wider range of borrowers.

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Borrowers whose income sources may fluctuate or have limitations in documentation may find non-QM loans to be a suitable option. These loans often have more flexible underwriting criteria and may take into account alternative forms of income verification. 

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 Such Borrowers Include:

• Entrepreneurs and self-employed individuals

• Independent contractors

• Small business owners

• Seasonal workers

• Retirees with pension or retirement income

• Investors with multiple properties

• High net worth individuals

• Borrowers with unique income streams

• Borrowers with non-traditional credit history

• Borrowers with high levels of existing debt

• Borrowers with a recent bankruptcy or foreclosure

• Borrowers with limited documentation

• Borrowers with a short credit history

• Borrowers with high income but low assets

• Borrowers with a history of late or missed payments.

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Non-QM loans can be an ideal option for borrowers who may not meet the standards for a qualified mortgage. These loans often come with alternative methods of income verification, such as bank statements or liquid assets, and may offer more flexibility in terms of credit scores, making them a viable choice for those who may have nontraditional or fluctuating sources of income.

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What are some common uses for a non-QM loan?

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In addition to catering to borrowers with non-traditional or unstable income sources, non-QM lenders also offer a variety of other loan options to meet various needs, such as:

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• Self-employed individuals or business owners who have difficulty providing traditional income documentation.

• Borrowers with a high debt-to-income ratio who may not qualify for a traditional loan.

• Investors looking to purchase multiple properties or rental properties.

• Borrowers with a recent credit event such as a bankruptcy or foreclosure.

• Borrowers with non-traditional income sources such as tips, commission, or bonuses.

• Borrowers looking to purchase or refinance a non-conforming property such as a jumbo loan or a loan for a farm or ranch.

• Borrowers seeking a loan for a short-term or adjustable-rate mortgage.
  Borrowers looking for a loan with a lower down payment or no down payment.

• Borrowers with a low credit score or no credit history.

• Borrowers looking for a loan with a flexible prepayment option.

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What are the debt-to-income ratio requirements for Non-QM mortgages?

 

Tthe specific debt-to-income ratio requirements for a non-QM loan, as they may vary depending on the lender or loan program. However, it is common for non-QM loans to have higher debt-to-income ratio limits than traditional QM loans, with some lenders allowing for ratios up to 55%. It is important to note that a higher debt-to-income ratio may make it more difficult to qualify for a loan and may also result in a higher interest rate. Working with a mortgage professional at Bennett Capital Partners can help you understand the specific requirements for a non-QM loan and determine if it is the best option for your financial situation.

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What are the documentation requirements for Non-QM mortgages?

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Non-QM mortgages have flexible documentation requirements, which means that borrowers may have more options to provide the necessary information to qualify for a loan. This can include bank statements, liquid assets, and other forms of income verification. This flexibility in documentation requirements can make it easier for borrowers who may not fit into traditional underwriting guidelines to qualify for a mortgage. Additionally, non-QM lenders may have less strict requirements for things like tax returns, pay stubs, and other traditional forms of documentation. This can save borrowers time and hassle in the loan application process. Overall, the documentation requirements for Non-QM mortgages are designed to be more flexible and accommodating to help more borrowers qualify for a home loan.

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Some examples include:

• Bank statements

• Tax returns

• Asset statements

• Income verification letters

• Proof of income from contract work

• Paystubs or W-2 forms for self-employed individuals.

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What are the credit score requirements for Non-QM mortgages?

 

The credit score requirements for Non-QM mortgages can vary depending on the lender. However, many Non-QM lenders may have lower credit score requirements than traditional lenders, which can make it easier for borrowers with lower credit scores to qualify for a mortgage. Additionally, Non-QM lenders may also take into account other factors such as the borrower's income and assets when assessing their creditworthiness. This means that even if a borrower has a lower credit score, they may still be able to qualify for a Non-QM mortgage if they have strong income and assets. Overall, Non-QM mortgages provide more flexibility and options for borrowers who may not meet the strict guidelines of a traditional mortgage.

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Can Non-QM mortgages be insured, backed or guaranteed by government-sponsored enterprises?

 

No, non-QM mortgages cannot be insured, backed or guaranteed by government-sponsored enterprises such as Fannie Mae or Freddie Mac, or the Federal Housing Administration. However, this does not mean that non-QM loans are less safe or less secure for borrowers. Non-QM lenders often have more flexible underwriting guidelines and may offer alternative methods of verifying a borrower's income, making them an attractive option for those with unique financial circumstances who may not qualify for a traditional QM loan. Additionally, non-QM loans may have lower credit score requirements and allow for higher debt-to-income ratios than QM loans, making them more accessible to a wider range of borrowers.

 

What are the underwriting guidelines for Non-QM mortgages?

 

Non-QM mortgages have more flexible underwriting guidelines compared to traditional Qualified Mortgages (QM). This allows for borrowers with unique financial circumstances or those who may not fit into the strict guidelines of a QM loan to still qualify for a mortgage. Non-QM lenders may consider factors such as cash reserves, income from non-traditional sources, and assets in addition to the traditional factors of credit score and debt-to-income ratio. These flexible guidelines can open up the possibility of homeownership to a wider range of borrowers, making Non-QM loans a great option for those who may have been denied a traditional mortgage in the past. Additionally, Non-QM mortgages may have less strict requirements on documentation, which can also make the loan application process more manageable for borrowers. Overall, the underwriting guidelines for Non-QM mortgages provide more opportunities for borrowers to qualify for a mortgage, even if they don't fit the mold of a traditional QM loan.

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How do Non-QM mortgages verify a borrower's income?

 

Non-QM mortgages have a more flexible approach to verifying a borrower's income compared to traditional loans. Instead of relying solely on traditional forms of income documentation such as pay stubs and W-2s, non-QM lenders may also consider alternative forms of income verification such as bank statements, liquid assets, and even self-employed income. This allows for a wider range of borrowers to qualify for a non-QM mortgage, including those who may have difficulty providing traditional forms of income documentation. Additionally, non-QM lenders may also consider factors such as the borrower's credit history and overall financial stability, allowing for a more holistic approach to income verification. Overall, the non-QM income verification process is designed to be more flexible and accommodating in order to accommodate the diverse financial circumstances of borrowers.

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Why go through a mortgage broker for your Non-QM loan needs? 

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A mortgage broker may be the best choice for a non-QM mortgage for a few reasons. First, mortgage brokers have access to a wide range of loan products from different lenders, which can increase the chances of finding a non-QM mortgage that fits the borrower's specific needs. Second, mortgage brokers are experts in the mortgage industry and can guide borrowers through the loan process, including explaining the benefits and risks of non-QM mortgages. Third, mortgage brokers may be able to offer non-QM mortgages at more competitive rates than banks, as they have more options to choose from. Additionally, mortgage brokers can help borrowers to understand the underwriting guidelines and documentation requirements for non-QM mortgages, which can be more flexible than traditional mortgages. This allows borrowers to make an informed decision, and get the best non-QM mortgage options available in the market.

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