When we talk about Non-QM loans, a lot of people have a bad impression of this type of loan. They think these are not a safe way to get a loan, due to the Great Recession Housing meltdown (December 2007 to June 2009) that leads the public to have a misconception about Non-QM loans.
In the years leading up to the Great Recession, lenders were careless about qualifying a loan, they were approving loans to those with poor credit and low downpayment, and most importantly some unethical lenders didn’t even verify their income to make sure the borrowers could afford to repay the monthly mortgage payment.
All these formed part of the reasons that the recession hit with such ferocity. Millions of people who had home loans couldn’t afford to pay.
But Non-QM loans are not subprime mortgages!!!
Today is different. Non-QM loans are not subprime mortgages. Now non-QMs have their own set of guidelines, and the lending process is similar to the QM loans, the only difference is the required documentation. Both types of loans are subject to the “ Ability to Repay Rule”, Today’s lenders must follow strict lending guidelines, A non-QM loan is as safe as other mortgages.
What is a Non-QM loan?
A Non-QM loan (non-qualified mortgage) is a type of mortgage that allows borrowers to qualify for a loan based on alternative methods, instead of the traditional income verification required for most loans.
The alternative income verification methods are, instead of W2s verification, you might be qualified for a loan using the bank statement, asset depletion, future rental income, etc. Also, there are special loan programs for foreigners or people with low credit scores that can prove their repayment ability to get a loan.
What is the downside of this type of loan? The interest rate and fee may be higher.
For those who are looking for a non -QM loans, make sure you rate-shop around, and talk to several lenders and loan officers, until you find the perfect mortgage. Doing this could save you thousands of dollars.
Non-QM loans are also good for people with a low credit score, for self-employed people who run their own business or work non-traditional jobs.
Should I consider a non-qualified mortgage?
If you can’t be qualified for a traditional loan, then, Non-QM may be your solution.
If you have income, and can pay your mortgage on time, but cannot get a qualifying mortgage, Non-QM loans might be your solution.
If your income is inconsistent, some months are high, others are not. You can’t know exactly how much you are going to earn next year, but you have no problem paying bills. Your credit score is high and you have money in the bank. Your finances are healthy but still can get passed the “income verification” requirement for a qualifying mortgage, This is where a non-QM comes in to help.
Different types of Non-QM loans
There are many types of non-QM loans, we will go over each one of these loan programs later:
- Bank statement mortgage: uses bank statements to calculate a borrower’s income.
- DSCR Loan ( Debts service coverage ratio): perfect for investors looking to expand their real estate portfolio.
- ITIN mortgage: for borrowers who do not have Social Security numbers.
- Foreign National mortgage: foreign nationals wanting to purchase in the United States.
- Credit recovered mortgage: borrowers who have recovered from credit events no longer have to wait seven years to purchase or refinance.
Non-QM loans are good for people who have found their dream home but were denied under qualified mortgage standards. You can also see this option as a temporary solution until you meet the regular mortgage guideline and refinance to a better interest rate with a traditional loan.
