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If your income or credit history falls outside the strict guidelines set by traditional mortgage loan programs, a non-QM loan may be worth considering.
A non-qualified mortgage (non-QM loan) doesn't conform to the consumer protection provisions of the Dodd-Frank Act. However, applicants whose incomes vary monthly or those with other unique circumstances may qualify for these types of mortgages.
For example, a lender may not offer you a qualified mortgage if you have a DTI of more than 43%. Or, if you have erratic income and don't meet the income verification requirements set out in Dodd-Frank and required of most lenders, you may not be offered a qualified mortgage.
Non-QM loans are convenient for people who have found their dream home but were refused a home loan under qualified-mortgage standards. A non-qualified mortgage may provide an interim lending solution until you meet standard mortgage guidelines and can refinance to a conventional loan.
Non-QM lenders offer options for:
Self-employed borrowers
While standard loan programs need tax documents to prove your self-employed income, non-QM lenders may offer bank statement mortgages without mandating filed tax paperwork.
Borrowers with a high net worth
Some lenders allow you to split the total cash balance in an asset account by a lender-chosen duration and use the result for qualifying income. This is known as an asset depletion loan.
Borrowers investing in multiple rental units
Non-QM loans may be a good option for investors who own more than ten financed investment properties — the limit for most conventional lenders. In addition, other non-QM lenders provide debt-service coverage ratio loans for real estate investors.
Borrowers with recent bad credit
You may be qualified for a non-QM loan one day after completing a bankruptcy or foreclosure. However, you typically must wait two to seven years after a substantial credit event for standard loan programs.
Borrowers who are foreign nationals
A foreign national is a citizen of another country who lives in the U.S. for short periods for work or vacation. Non-QM loans for foreign nationals may not need proof of U.S. income, credit, or a Social Security number.
Borrowers who want an interest-only payment option
Sporadic income-earners could benefit from an interest-only loan that permits lower payment options during periods of the year when they earn less.
A non-QM is a fine idea when you have the income to make steady, on-time loan payments but cannot get a qualifying mortgage.
Imagine that you own a contracting firm. Some months, your income is high, and others, only a little goes into your bank account. You cannot know precisely how much you will earn yearly. But you don't have trouble paying your bills, your credit score is high, and you have cash in the bank. Even though your finances are healthy, you won't be able to tick the "income verification" box needed for a qualified mortgage. That's where a non-QM comes in.
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