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Navigating Non QM Loan Requirements for Non-Warrantable Condos

Updated: Jun 2

Navigating Non QM Loan Requirements: A Guide For Non Warrantable Condo Buyers

Are you finding it difficult to navigate the complex maze of non-QM loan requirements? We know exactly how daunting that can be - at Bennett Capital Partners, we've helped numerous clients overcome these challenges through our trusted expertise.


This article is tailored specifically for those looking to understand and conquer non-QM loan requirements, especially if you're eyeing a non-warrantable condo. Let's dive into this guide - your path toward a stress-free application awaits!



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Key Takeaways


Non QM loans are mortgages that do not meet the qualified mortgage (QM) requirements set by Fannie Mae and Freddie Mac, offering more flexibility for borrowers with unconventional income sources or higher debt levels.


Non-QM loan options include bank statement loans, non-warrantable condo loans, profit and loss-only mortgage programs, investment property loans, and foreign national mortgages, and more.


Requirements for Non QM Mortgages may vary, but borrowers must meet specific criteria regarding credit score and down payment. While there is no specific credit score requirement for a non-QM loan, having a higher credit score improves the chances of approval. Down payment requirements for non-QM loans tend to be larger than conventional loans.


Non-warrantable condos do not meet the criteria set by Fannie Mae and Freddie Mac and may be more difficult to finance compared to warrantable condos. Factors that can make a condo non-warrantable include high rental occupancy rates or pending litigation, many other factors.




Understanding Non-QM Loans

Understanding Non-QM Loans

Non-QM loans are mortgages that do not meet the qualified mortgage (QM) requirements set by Fannie Mae and Freddie Mac.


What Makes a Loan a Non-QM?


A loan becomes a Non-Qualified Mortgage (Non-QM) when it doesn't meet the guidelines established by the Consumer Financial Protection Bureau. Unlike Qualified Mortgages (QM), Non-QM loans don't require borrowers to have a 43% debt-to-income ratio, making them appealing to those with unconventional income sources or higher debt levels.


For example, we at Bennett Capital Partners offer Bank Statement Programs; these are non-QM loans designed for consumers who validate their earnings through bank statements rather than traditional income documentation.


Furthermore, our Profit and Loss only mortgage program falls under this category as borrowers use recent profit and loss statements to confirm their income. These flexible solutions align perfectly with our goal of helping clients achieve homeownership under unique circumstances.



The Difference Between a QM and Non-QM Loan


In the real estate world, Qualified Mortgage (QM) and Non-Qualified Mortgage (Non-QM) are two significant classifications. A QM loan follows strict guidelines set by the Consumer Financial Protection Bureau, ensuring that borrowers can afford to repay their loans.


They require extensive documentation of income, assets, debts, and credit history. On top of this, these loans typically do not exceed 43% debt-to-income ratio.


On the other hand, Non-QM mortgages offered by Bennett Capital Partners provide more flexibility. We understand that not all clients fit into traditional lending criteria due to unconventional income sources or unique credit situations.


That's where non-qm loan requirements come in handy. These loans give our clients an opportunity homeownership dream despite having unconventional income sources or credit challenges- without exceeding Dodd-Frank rule thresholds for high-cost Mortgages which makes them safe and beneficial financing options for prospective homeowners regardless of their financial situation.


Examples of Non-QM Loans


As mortgage borrowers, you may come across a variety of non-QM loans that suit unique financial situations. Here are several examples:


➡️ Non-Warrantable Condo Loans: Condos that do not fit Fannie Mae or Freddie Mac guidelines would be considered non-warrantable and would require a Non-QM mortgage.


➡️ Bank Statement Loans: These are perfect for those who wish to use their bank statements to verify income instead of traditional documentation.


➡️ Non-Warrantable Condo Loans: For condominium properties failing to meet the criteria set by Fannie Mae and Freddie Mac, these loans ensure financing options are still available.


➡️ Profit and Loss (P&L) Only Mortgage Programs: Lenders rely solely on a borrower's most recent profit and loss statement to document their income making it ideal for self-employed individuals or business owners.


➡️ Investment Property Loans: Available to those with high debt-to-income ratios or unconventional income sources, these loans are excellent for securing investment properties without traditional QM criteria constraints.


➡️ Foreign National Mortgages: If you're a foreign national striving to own property in the United States but cannot meet traditional loan requirements, these specialized non-QM loans could be your solution.


➡️ Recent Credit Events: Idividuals who have recently experienced significant credit events such as bankruptcies, foreclosures, or short sales.


Non-QM Loan Requirements

To qualify for a non-QM mortgage, borrowers will need to meet specific requirements regarding credit score and down payment.


What Credit Score Do You Need for a Non-QM Mortgage?


At Bennett Capital Partners, we understand that not everyone has a perfect credit score. That's why our non-QM loans offer more flexibility when it comes to credit scores. While there is no specific credit score requirement for a non-QM mortgage, having a higher credit score will improve your chances of approval and may lead to better loan terms.


We take into account various factors besides just the credit score, such as income, assets, and debt-to-income ratio. Our goal is to provide financing options for borrowers who may not qualify for traditional mortgages due to their unique financial situations or imperfect credit histories.


So even if you have had some past issues with your credit, don't automatically assume you won't be approved for a non-QM loan – contact us today and let us help you explore your options!


How Much Do You Have to Put Down on a Non-Qualified Mortgage?


When it comes to non-qualified mortgages, the down payment requirements can vary depending on the lender and the specific loan program. However, it's important to note that non-QM loans often require a larger down payment compared to conventional loans.


While conventional loans typically require a minimum down payment of 3% to 5%, non-QM lenders may ask for a down payment of at least 10% or more. This is because non-QM mortgages are considered higher risk due to their unique underwriting criteria and flexibility in income verification.


So, if you're considering a non-qualified mortgage, be prepared to put down a larger amount upfront as part of your financing process.



The Non-Qualified Mortgage (Non-QM) Rule is a set of lending guidelines that were implemented after the 2008 financial crisis. These rules are designed to ensure borrowers have the ability to repay their loans, even if they don't meet traditional qualification criteria.


Non-QM loans offer more flexibility and cater to borrowers with non-traditional income sources or credit challenges. Unlike Qualified Mortgages (QM), which adhere to strict regulations, Non-QM loans take into consideration broader factors such as bank statements and profit and loss statements for self-employed individuals.


At Bennett Capital Partners, we specialize in offering Non-QM mortgages for clients who may not qualify for conventional loans. Our goal is to help you navigate these requirements so you can achieve homeownership, even if your financial situation doesn't fit within traditional guidelines.




The Appeal of Non-QM Loans

The Appeal of Non-QM Loans

Non-QM loans offer borrowers flexibility and options that may not be available with traditional mortgage loans. From lower credit score requirements to competitive interest rates, non-QM loans can be a great alternative for those who don't meet the strict criteria of qualified mortgages.


Find out more about the benefits of non-QM loans and whether they're the right choice for you in our comprehensive guide.


Is a Non-QM Loan a Good Idea?


At Bennett Capital Partners, we understand that not everyone fits into the traditional mortgage mold. That's where non-QM loans come in. While they may have higher interest rates and require a larger down payment compared to conventional loans, they can be a good idea for borrowers who don't qualify for traditional financing.


Non-QM loans offer flexible underwriting requirements and consider non-traditional income sources, making them suitable for borrowers with high debt-to-income ratios or investors looking to finance investment properties.


So, if you're struggling to secure a conventional loan, exploring the possibilities of non-QM mortgages may just be the right move for you.


The Average Interest Rate for a Non-QM Mortgage


Non-QM mortgages, also known as non-qualified mortgages, offer borrowers more flexibility than traditional mortgages. However, it's important to understand that this flexibility comes at a cost.


On average, the interest rates for non-QM mortgages are higher compared to conventional loans. This is because lenders view these loans as riskier due to factors such as lower credit scores or unconventional income sources.


It's crucial for mortgage borrowers considering a non-QM loan to carefully weigh the benefits and drawbacks of these types of loans. While the higher interest rates may seem daunting, they can still be a viable option for individuals who don't qualify for traditional financing.


Do Banks Offer Non-QM Loans?


Bennett Capital Partners is a trusted mortgage lender that specializes in providing flexible and innovative non-QM mortgages. We understand that not all borrowers fit into the traditional lending criteria, which is why we offer a range of non-QM loan options to help you achieve homeownership.


Whether you're self-employed, have unconventional income sources, or faced credit challenges in the past, our team can work with you to find a non-QM loan solution that meets your needs.


Unlike traditional banks, we have expertise in navigating the complexities of non-QM loans and can provide competitive rates and terms tailored to your unique situation. Trust Bennett Capital Partners for all your non-QM mortgage needs.



Understanding Warrantable and Non-Warrantable Condos

Warrantable condos are properties that meet the criteria set by Fannie Mae and Freddie Mac, while non-warrantable condos do not meet these criteria.


What Does Warrantable Condo Mean?


A warrantable condo refers to a condominium that meets specific criteria set by Fannie Mae and Freddie Mac, making it less risky for lenders and easier to finance. These criteria include factors such as a majority of owner-occupied units, no single entity owning more than 10% of the units, no pending litigation, a financially stable condo association with adequate reserves, and insurance coverage that meets Fannie Mae and Freddie Mac's requirements.


Essentially, a warrantable condo is seen as a safer investment by lenders due to its compliance with these established standards.



Warrantable condos are properties that meet specific criteria set by Fannie Mae and Freddie Mac, making them eligible for traditional financing. These condos typically have a majority of owner-occupied units, no single entity owning more than 10% of the units, and no pending litigation.


On the other hand, non-warrantable condos do not meet these criteria and may be more difficult to finance. They often have a higher number of rented-out units or a single entity owning a significant portion of the units.


Non-warrantable condos may also have pending litigation or other factors that make them riskier in the eyes of lenders. It's important to understand these differences when looking to buy a condo and consider how they may affect your financing options.


What Makes a Condo Not Warrantable?


Condos may be considered non-warrantable for a variety of reasons. Some common factors that can make a condo not warrantable include having a high percentage of rental units, being located in a high-crime area, having a history of structural problems or financial trouble, and being in a floodplain or other high-risk areas.


Additionally, if there is pending litigation against the condo association or if the association lacks adequate reserves and insurance coverage, it may also make the condo non-warrantable.


It's important to consider these factors when buying a condo as they can impact your ability to secure financing and potentially affect the resale value of the property.






Non-warrantable condo loans are mortgages specifically designed for condominium properties that do not meet the criteria set by Fannie Mae and Freddie Mac for purchase or securitization.


What is a Non-Warrantable Loan?


A non-warrantable loan is a type of loan that is not eligible for purchase or securitization by Fannie Mae and Freddie Mac. These loans are typically offered by specialty lenders, like Bennett Capital Partners, who specialize in providing financing options for properties that don't meet traditional lending criteria.


Non-warrantable loans are often used for non-warrantable condos, which are condos that do not meet the guidelines set by Fannie Mae and Freddie Mac. This could be due to factors such as high investor ownership, commercial space in the building, or other unique characteristics.


While non-warrantable loans may have slightly higher interest rates compared to traditional loans, they provide flexibility for borrowers who may not qualify for conventional financing due to unconventional income sources or credit challenges.


Why is a Non-Warrantable Condo Risky?


Non-warrantable condos are considered risky for several reasons. One reason is that they do not meet the criteria set by Fannie Mae and Freddie Mac, making them more challenging to finance.


These condos may have issues such as a majority of rented-out units, pending litigation, financially unstable condo associations, or inadequate insurance coverage. Additionally, there might be a single entity that owns more than 10% of the units.


These factors can make it harder to obtain financing and potentially lead to difficulties selling the property in the future. It's essential for mortgage borrowers to carefully consider these risks before purchasing a non-warrantable condo and thoroughly inspect its condition as well as assess the stability of the condo association and insurance coverage.


What Does a Non-Warrantable Loan Mean?


A non-warrantable loan is a type of mortgage that cannot be sold to government-sponsored entities like Fannie Mae or Freddie Mac. These loans are typically offered by private lenders and cater to borrowers who may not meet the strict criteria for traditional mortgages.


Non-warrantable loans are often considered riskier since they don't adhere to the established guidelines, but they provide more flexibility for individuals with unique financial situations.


While interest rates and down payment requirements may be higher compared to traditional loans, non-warrantable loans can be a viable option for those with recent credit events, non-traditional income sources, high debt-to-income ratios, or investors looking to finance investment properties.



Buying a Non-Warrantable Condo

Buying a Non-Warrantable Condo

If you're considering buying a non-warrantable condo, it's important to understand the associated risks and considerations. From financing challenges to limited resale options, navigating the world of non-warrantable condos can be complex.


In this blog post, we'll explore what makes a condo non-warrantable, the potential advantages and drawbacks of purchasing one, and how you can determine if a condo is warrantable or not.


If you're interested in exploring this unique real estate opportunity further, read on for valuable insights and guidance.


Should I Buy an Unwarrantable Condo?


When considering whether to buy an unwarrantable condo, there are a few factors to keep in mind. First, it's important to understand that non-warrantable condos do not meet the criteria set by Fannie Mae and Freddie Mac for purchase or securitization.


This means that obtaining financing may be more challenging and you may need to explore alternative loan options such as non-QM mortgages. Additionally, buying an unwarrantable condo can come with added risks since these properties often have restrictions or issues that make them ineligible for traditional financing.


It's crucial to thoroughly research the condo association, the financial stability of the development, and any potential resale difficulties before making a decision. Working with a knowledgeable mortgage lender who specializes in non-warrantable condo loans can help guide you through the process and ensure you make an informed decision based on your unique circumstances.


Should You Buy a Non-Warrantable Condo?


When considering whether to buy a non-warrantable condo, there are a few factors to keep in mind. Non-warrantable condos are typically considered riskier and may come with higher interest rates or require a larger down payment.


However, they can also offer unique advantages depending on your specific situation. For example, if you're looking for a condo in a primarily rented-out building or if you're willing to accept the potential challenges, it could be worth considering.


It's important to thoroughly inspect the condition of the building before making a decision and weigh the potential risks against any benefits that may be available. At Bennett Capital Partners, we offer financing options for non-warrantable condos and can help you navigate the process with ease and confidence based on our expertise in non-QM mortgages.


How Can You Tell If a Condo is Warrantable or Non-Warrantable?


Determining whether a condo is warrantable or non-warrantable can be crucial when it comes to securing financing. Here are some key indicators that can help you determine the status of a condo:


Check Fannie Mae and Freddie Mac's guidelines: These government-sponsored enterprises have specific criteria for what qualifies as a warrantable condo. Checking their guidelines can give you a clear idea of whether a particular condo meets their requirements.


Review the condo association's bylaws: The condo association's bylaws often contain information about the type of ownership, restrictions on rentals, and other factors that may affect the eligibility of the condo for traditional financing.


Look for commercial space within the development: If there is too much commercial space compared to residential units in a development, it may be considered non-warrantable.


Consider short-term rentals and investor-owned units: Condos that allow short-term rentals like Airbnb or have a high percentage of investor-owned units may be deemed non-warrantable due to concerns about stability and conformity.


Evaluate the financial health of the homeowner's association (HOA): Lenders typically assess HOA's financial statements to determine if they have sufficient reserves and if they manage funds responsibly. Poor financial health may raise red flags regarding the warrantability of the condo.


Assess legal and insurance issues: Non-warrantable condos may have ongoing litigation, pending assessments, or difficulty obtaining appropriate insurance coverage, all of which make them less desirable from a lender's perspective.


For a feep dive into this topic of what makes a condo warrantable or non-warrantable check out our blog post Warrantable vs Non-Warrantable Condos: Understanding the Key Differences



Conclusion

 Conclusion

In conclusion, navigating non-QM loan requirements for non-warrantable condo buyers may seem complex, but with the right guidance and expertise from Bennett Capital Partners, it can be a seamless process. That's why we made this guide: to help you better grasp the options available for non-warrantable condo buyers. Understanding the non-qm meaning is essential before you can feel confident in your condo financing.


Our team of knowledgeable loan officers specializes in offering flexible and innovative non-QM mortgage options that cater to individual needs and circumstances. With our commitment to superior customer service and cutting-edge technology, we strive to make homeownership dreams a reality for all borrowers, even those with unconventional income sources or credit challenges.


Trust Bennett Capital Partners to guide you through the non-QM financing journey with ease and confidence.".



FAQs


What are non QM loan requirements?


Non QM loan requirements refer to the criteria that borrowers need to meet in order to qualify for a non-qualified mortgage (QM) loan. These loans do not comply with the strict guidelines set by government-sponsored enterprises like Fannie Mae and Freddie Mac.


What makes a condo warrantable or non-warrantable?


A warrantable condo is one that meets specific criteria set by Fannie Mae, Freddie Mac, or other investors that purchase mortgages. Non-warrantable condos, on the other hand, do not meet these criteria and may have restrictions such as commercial space exceeding a certain percentage or excessive homeowner delinquencies.


Are there additional requirements for buying a non-warrantable condo with a non QM loan?


Yes, since non-warrantable condo pose higher risks for lenders, obtaining financing for them typically comes with stricter requirements. These may include higher down payment percentages, credit score thresholds, lower debt-to-income ratios, and reserve funds.


Can I refinance my non-warrantable condo using a non QM loan?


Yes, refinancing options are available for owners of non-warrantable condos through non-QM loans. However, similar to purchasing a non-warrantable condo with this type of financing, refinancing may come with additional requirements due to the increased risk involved.




 
Philip Bennett

Philip Bennett


Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, Bus. NMLS # 2046828. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.


Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.


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