Non-QM loans (or non-qualifying loans) are home mortgages that do not meet agency lending rules outlined by the CFPB. They do follow the standard qualification process which usually involves verifying income, employment, assets, and other documents that check your credit worthiness for a traditional mortgage. In essence these Non-QM programs make a ‘good faith determination’ based on the factors in each scenario.
This sounds pretty risky for a lender but Non-QM loans have higher down payment requirements so homebuyers have more ‘skin in the game’. Lenders are able to offer more flexible income requirements while requiring higher down payments and credit scores. They also have higher interest rates to offset the added risk.
There are many different programs that fall under the Non-QM mortgage category that could relate to many borrowers from a self-employed entrepreneur or independent contractor, a real estate investor, or a Foreign National purchasing or refinancing a home in the United States. There are also options for W2 employees or anyone that shows enough traditional income but may have recently filed bankruptcy or had a short sale or foreclosure and doesn’t meet the seasoning period required by traditional loan types.
Who is a Non-QM mortgage for?
Typically we find Non-QM loans are great for borrowers who are in one of these situations below:
- Self-employed with a lot of deductions or write-offs on taxes – not showing enough on taxes to qualify
- Someone who hasn’t been on the job a full 2 years
- Borrowers that can’t document their employment or income but have a high-net worth with liquid assets
- Borrowers with credit blemishes or recent major derogatory incidents
- Jumbo purchase with a lower down payment
- Investors looking to purchase rental
- Foreign nationals purchasing rental or vacation homes
Types of Non-QM Mortgages
Here are a few examples of some of the more popular Non-QM mortgage types:
Bank Statement Loans – these loans are for someone who is self-employed, contract, 1099 and doesn’t show enough income or has too many expenses on tax returns. This loan allows the borrower to show their bank statement deposits (representing revenue) over the past 12 or 24 months as income instead of tax returns. The bank account can be personal or business. There is a different calculation used depending on which account is being used and the type of business the borrower is involved in. Someone with higher credit may qualify for as little as 10% down. There are programs that will only look at 3 months but require higher down payments and credit scores. This is a great program that Bank of England Mortgage Troy has utilized many times for their clients to reach homeownership.
Limited Document Loans – these loans allow someone who is self-employed or 1099 to use a CPA prepared profit and loss statement covering the most recent 12 months for their income instead of tax returns. This also allows someone who is a W2 employee to qualify off of a verification of employment completed by their employer. This loan typically requires 25-30% down.
Asset Based Income – this would be someone that can’t or doesn’t want to show their employment or income but has a lot of liquid assets. Bank account, investment accounts, and even retirement accounts can be counted towards those assets. Each investor has a different calculating model to figure out how much qualifying income they will count for that borrower towards a new mortgage.
Debt-Service-Coverage-Ratio (DSCR) – this program has also been utilized many times by Bank of England Mortgage Troy. This is a great program for any borrower that doesn’t show enough income on W2s or taxes, or simply wants a quick loan with very little documentation for a rental investment property. The qualification is based on the market rent on a property covering the total mortgage payment including taxes, insurance, and HOA/assessments of the new home they’re purchasing. A borrower needs to own a primary residence with no late payments on the current mortgage, have their own down payment and closing funds available and seasoned in their account for 60 days. Down payment is usually at least 20% but some investors may allow 15% down. These are for investment homes only and cannot be used for a primary residence or vacation home.
In any case, it is always better for a borrower to have higher credit scores and strong assets to qualify for any Non-QM loan programs.
Get Pre-Approved for a Non-QM Loan
Applying for a Non-QM loan with an experienced Mortgage Advisor is crucial. Alex Kandah and his team at Bank of England Mortgage Troy have extensive knowledge and vast experience with Non-QM loans to guide you through every step of the process. If you are looking to purchase or refinance a home in any city in Michigan such as Troy, Rochester Hills, Ann Arbor, West Bloomfield, Birmingham, or anywhere else in the United States, contact Bank of England Mortgage Troy. Call or text us today at (248) 633-8555 or email firstname.lastname@example.org, or simply fill out the form on this page for prompt, professional, honest guidance.