What are Non-QM loans?
Non-QM loans are for borrowers ready to buy a home but may not qualify by traditional standards. When applying for a mortgage, you will either apply for a “QM” or a “Non-QM” loan. A qualified mortgage (QM) is a mortgage that meets specific requirements for lender protection and secondary market trading as dictated by the CFPB. On the other hand, a non-qualified mortgage (Non-QM) is designed for borrowers who do not meet the qualification guidelines. Non-QM loans have their own guidelines and have more flexibility in their eligibility requirements.
Due to a Non-QM loan’s “riskier” nature, borrowers may be required to pay a larger down payment, and the interest rates can be higher than conventional loans. Non-QM borrowers are simply more complex borrowers as it relates to their financial picture. Often, the nature of their employment makes qualifying for a traditional loan more difficult.
Who would benefit from Non-QM loans?
- Contractors and self-employed borrowers who do not receive traditional income documentation.
- An investor or property owner who may want to use cash flow from one property to buy a new property.
- Retired borrowers on a fixed income with high net worth
- Borrowers who may have had a recent foreclosure or bankruptcy recently.
- Borrowers with a Debt-to-Income Ratio of about 43%.
- Foreign Nationals
Non-QM loans are not for all borrowers, but many unique programs are available to help non-traditional borrowers get financing for a new home or investment property. Many credit-worthy borrowers do not fit into conforming loan guidelines but deserve loan approval, and Mortgage Equity Partners is here to help.
Here are some of our most popular Non-QM loan programs:
Non-QM loans for Self-Employed
Self-employed borrowers may be eligible for a bank statement loan. A bank statement loan, or a stated income loan, is typically used by a self-employed borrower looking to purchase a home. With this type of loan, a borrower qualifies for a mortgage based on their bank statements instead of tax returns or W2s. This loan is beneficial for borrowers with inconsistent incomes month over month. Bank Statement loans are a Non-QM product and are considered riskier than traditional loans. Bank Statement loans offer some flexibility for self-employed borrowers, but they can have more strict qualifying guidelines.
Borrowers who receive a 1099 could be eligible for a 1099 Income loan. Many freelancers, contractors, gig economy workers, or other self-employed borrowers who file using W-9s have difficulty qualifying for a traditional mortgage. A 1099 loan helps many self-employed 1099 earners achieve homeownership.
Profit and Loss (P&L) Only loan income programs allow self-employed borrowers to qualify for a mortgage based on a P&L prepared by a CPA on the CPA’s letterhead. This documentation must cover the most recent two years and the Year-to-Date for the business. P&L loans can be used for owner-occupied, non-owner-occupied, and second homes. Property types include single-family residences, townhomes, and condos. P&L Only Income loans are another way to provide flexibility in lending to non-traditional borrowers.
Non-QM loans for Investment Properties
Borrowers who purchase homes as investments but do not want to use their personal income to qualify could be interested in a DSCR loan. A DSCR or debt service coverage ratio loan measures the cash flow a borrower has to pay against a current debt obligation for an investment property. A DSCR loan is a Non-QM loan used by real estate investors to help them qualify for a loan based on their property’s cash flow. To qualify, the property must generate enough rental income to offset the mortgage payment plus other expenses associated with the investment property. The debt service coverage ratio is calculated by dividing the net operating income of the investment property by the debt obligations. A DSCR loan doesn’t require proof of personal income through tax returns or pay stubs. However, a real estate investor must show their ability to repay the loan with a qualifying DSCR.
Fix and Flip loans are for housing market investors profiting from the ability to purchase older derelict properties, fix them up, and either resell or rent out these properties for passive income. Borrowers with any level of investor experience can apply for these loans. They are suitable for non-owner-occupied single-family, multi-family up to four-unit property types. Purchase loans will go up to 85% of the cost of the property, and construction loan amounts will go up to 100% of the cost. In addition, Fix and Flip loans offer a 12-month term with interest-only payments, so the investor will have a low monthly payment as they fix up the property. The guidelines on these loans will vary, so working with a loan specialist who knows the programs is essential.
Non-QM loans retirees
A Reverse Mortgage, also known as a Home Equity Conversion Mortgage (HECM), allows homeowners to borrow money using their home as security for the loan. With a reverse mortgage, borrowers do not make monthly payments. Instead, the loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance monthly. With a reverse mortgage, homeowners must still pay property taxes and insurance and use the property as their primary residence while keeping the home in good condition. To be eligible for this type of loan, you must be 62 or older.
Asset Depletion is a non-QM loan that allows borrowers to use their assets to qualify for a mortgage instead of employment income. Assets are used as collateral for paying back the loan. Money market accounts, checking or savings accounts, certificates of deposit, retirement accounts, or investment accounts. Borrowers who can benefit from Asset Depletion Mortgages include those who are self-employed with insufficient traditional, verifiable income, retirees with insufficient verifiable fixed income, or individuals with many assets in the U.S.
Non-QM loans for foreign nationals
A Foreign National loan program is a lending option for non-residents in the United States looking to purchase a home, whether for an investment or to use as a home when visiting. Foreign Nationals face unique challenges when attempting to buy property. Our Foreign National loan program allows non-residents to get a mortgage without a social security number, green card, or visa. Additionally, they are not required to have a FICO score to provide proof of credit. Instead, Foreign National borrowers can demonstrate creditworthiness through other means or submit a credit report from their country of origin. Foreign National loans are also known as ITIN loans or non-permanent resident alien loans. These programs allow non-citizens to purchase property without the traditional documentation required.
At Mortgage Equity Partners, we have a full line of Non-QM loan products that will suit the needs of most borrowers. To learn more about our Non-QM line of products, contact our experienced loan officers today.