The best mortgage companies offer a wide selection of mortgage loan programs. For example, Mortgage Equity Partners provides a complete portfolio of mortgage options for their experienced loan officers to help first-time homebuyers, real estate investors, and others find the best mortgage program to fit their needs. While conventional fixed-rate loan programs and government loans such as FHA, USDA Loans, and VA loans are the most popular loan options, Non-QM loans are also becoming extremely desirable as borrowers with non-traditional employment and other unique financial situations continue to enter the homebuying market.
What is a Non-QM loan?
To understand a Non-QM loan, you must understand what a “QM” or qualified mortgage means. A qualified mortgage meets the CFPB’s ability to repay rule, which requires that lenders vet your finances thoroughly and set terms on the loan so that you are more likely to be able to repay the loan. In addition, a qualified mortgage is considered less risky. For example, loans with interest-only periods, negative amortization, balloon payments, or loans with terms over 30 years would not meet Qualified Mortgage Guidelines. The government also requires QM loans to limit the price of the loan or APR and not to charge excessive points and fees.
What if you are a non-traditional or self-employed borrower?
Many of these considerations were put into place to protect consumers, but what if you are a non-traditional or self-employed borrower? For example, you may not have the documents required for a QM loan but can still afford to buy a home and make mortgage payments. Non-QM loans allow non-traditional borrowers to finance primary residences and investment properties more efficiently. Not all borrowers are alike and have diverse needs when it comes to home financing.
Non-QM options include loans for the following borrowers:
Self-employed Borrowers, freelance, or gig-economy workers
Self-employed borrowers can often use bank statements to prove their income with a Non-QM loan. Lenders can look at 12 to 24 months of personal or business bank statements instead of tax returns to verify income.
Borrowers with High-Net-Worth
Borrowers with high net worth can use asset depletion to qualify for certain loans. Asset depletion is a method used to qualify a borrower using a formula that divides a borrower’s total assets by a set number of months. Assets are used as collateral for paying back the loan instead of using income.
Borrowers investing in Multiple Rental Units
Most conventional investment loans limit the number of properties a borrower can have and still qualify, but Non-QM loans allow for a higher number of properties. Also, if the rent on the new home being purchased covers the monthly payment, other income may not be required to qualify-this is called a debt-service coverage ratio loan for real estate investors.
Borrowers with Credit Challenges, high levels of debt, or low credit scores
With traditional loans, borrowers need to wait two to seven years to qualify for a loan after a foreclosure or bankruptcy, but some Non-QM loans allow you to qualify just one day after these events.
Borrowers who are Foreign Nationals
Foreign Nationals are citizens who live in the US temporarily. Non-QM loans for Foreign Nationals may allow them to qualify for a loan without proof of income, credit, or a social security number.
Borrowers who want an interest-only option
Some borrowers with income that varies from month to month due to the nature of their employment can use interest-only loans to make a lower monthly payment when necessary.
How do you decide if a Non-QM loan is right for you?
If you have a high debt-to-income ratio or erratic income and do not meet the income verification standards, you may want to consider a Non-QM loan. In addition, a Non-QM loan may be the best option if you have had a recent bankruptcy or foreclosure.
Non-QM loans often require a larger down payment and have higher interest rates. Still, most borrowers who choose these loans do so because of the benefits of the flexible document requirements, the higher DTI ratio limits, and the interest-only option.
Non-QM loans are not suitable for everyone. The bottom line is that not all borrowers are the same, and the Mortgage Equity Partners experienced loan officers know this and adapt their product offerings to meet the needs of all their borrowers.
If you are unsure which type of loan would work best for you, contact one of our loan professionals near you to learn more.