Non-QM loan

Who is eligible for a Non-QM Loan?

Non-QM loans are particularly suitable for borrowers who do not meet the underwriting guidelines set forth by Fannie Mae and Freddie Mac. These types of loans are designed for those who may have difficulty securing a traditional mortgage loan due to factors such as poor credit, income inconsistencies, or a higher debt-to-income ratio. The eligibility for this varies based on the specific requirements of the lender. Non-QM loans are a smart option for self-employed borrowers. WHY? Bank statements or 1099s may be used to qualify! Self-employed individuals may use 12 or 24 months' personal or business bank statements to support their income in qualifying for a mortgage.

What are the benefits of a Non-QM Loan?

Non-QM loans offer many benefits to borrowers who may not qualify for traditional mortgage loans. Non-QM loans often offer more favorable terms compared to other loans that fall outside traditional guidelines. Borrowers may be able to secure a lower interest rate or pay a lower down payment, making homeownership a more achievable goal. This program also offers a viable solution for self-employed individuals whose income fluctuates month to month.

• Up to $2 million loan amounts
• Income is calculated by averaging deposits shown on bank statements
• 30 and 40-year interest-only fixed-rate terms and ARM pricing available

What are the requirements for obtaining a Non-QM Loan?

Non-QM loans vary based on the individual requirements of the lender, but there are certain factors that are common across most non-qualified mortgage issuance. Borrowers will need to provide documentation verifying their income, employment history, and credit score. Non-QM loans also often carry higher interest rates and fees than traditional mortgage loans, as they are considered riskier by lenders.

Borrowers should also expect to go through a more thorough underwriting process, as lenders will want to be sure that they can afford to repay the loan.

It is also essential to note that Non-QM loans will require a significant down payment when it comes to financing the loan. While the exact percentage may vary, borrowers should expect to pay up to 20% of the home's purchase price as a down payment.

When Does Non QM loans Make Sense?

Self-employment has been on the rise for decades, now making up more than a quarter of Americans’ incomes. From business owners and contractors to a growing gig economy, more borrowers are in need of mortgages built to work with their lifestyles, careers, and  needs, so they can achieve their homeownership dreams.

Scenario 1

A self-employed first-time home buyer was looking to purchase a home with a loan amount more than $1.5M (typically, we would not allow a borrower that has not had a mortgage over 3 years to finance a loan amount that size).  The credit report showed he had a condo from 2015- 2017 with no late payments dating back to the 2015 purchase. He also had a $1.8 mortgage with on-time payments from 2009-2015. The application showed $621,000 in post-closing reserves, a 755 FICO, and stable employment since 2000. Since he had shown the ability to make mortgage payments on a loan size larger than $1.5 M in the past and had other strong compensating factors, we approved an exception for the larger loan.

Scenario 2

A self-employed borrower looking to go full doc with had a DTI ratio that exceeded our 50% max. The IRS tax payment plan was not initially included in the borrower’s debt, which then caused the DTI to increase. With a DTI of 55%, we examined the rest of the file for compensating factors. The borrower had no late payments on their mortgage for 30+ months, a solid employment history, and post-closing reserves of $85,000. We were able to grant an exception for this borrower.