Whether you have a flawed credit history, you’re an aggressive investor, or you don’t have the backing of an employer-issued paystub, you could have issues getting approved for a traditional mortgage or loan. It can be disheartening, but there are ways available to finance a real estate purchase in your position.
Non-QM mortgages are provided by lenders to people in unique financial situations. By identifying why you might need a non-QM mortgage, you could be on your way to sorting out your next purchase.
What is a Non-QM loan?
Since the financial crisis of 2008-09, the Frank-Dodd Act has established criteria for lenders to fund mortgages. The purpose is simple: to prevent a repeat of the subprime mortgage collapse by implementing guidelines for lenders and borrowers.
After the Frank-Dodd Act was put into practice, a person’s TDSR – total debt-to-service ratio – shouldn’t exceed 43% of their income and their FICO credit score is a minimum of 620. In addition, the loan can’t include negative amortization, payments of interest only, or balloon payments. The loan term must be 30 years or less, and the fees and points on a mortgage above $100,000 can’t be more than 3%. It’s called a qualified mortgage if it meets these standards. If it doesn’t it’s considered a non-qualified or Non-QM mortgage.
Reasons a Non-QM mortgage may be necessary
Clearly there are reasons that you might not fit the criteria of a qualified mortgage. Below are five positions when a non-QM mortgage loan may be the solution for you.
Reason #1: You’re self-employed or have non-traditional income
Without a paystub or a W-2, self-employed individuals or company owners face an uphill battle securing a mortgage. Most traditional lenders don’t easily factor in an entrepreneur’s true income since it’s so beneficial to write off as much income as possible, come tax time.
With non-QM mortgages at MBANC, a thorough review of a self-employed person’s documentation and financial history is taken into consideration, offering a fair chance to secure a mortgage on the dream home you deserve.
Reason #2: Your credit isn’t all that hot
Whether pandemic-related, the financial stress of a divorce, or a credit score that’s climbing out of rock bottom, it may not be possible to qualify for a conventional mortgage. You need a minimum FICO score of 620 for a qualified mortgage.
Unfortunately, your options are limited when your credit rating is below 620. In most cases, you’ll need to come up with a substantial minimum 10% down payment to secure a non-QM mortgage.
Reason #3: The property isn’t an owner-occupied residence
If you are a real estate investor, the tax write-offs you’re eligible for makes it look like you don’t have the income to service the properties you currently own, not to mention an additional property. However, an experienced mortgage analyst can determine from a 1099, bank statements, or cash flow from properties to get you approved.
A rental property, investment property, or an otherwise non-owner-occupied property is obviously a good investment. It’s one that MBANC can help you purchase with a non-QM mortgage to help you meet your financial goals.
Reason #4: You aren’t an American resident
If you’re in the United States but don’t yet have a Green Card or permanent resident status nor a Social Security number, a non-QM mortgage can help you purchase a home. While most lenders require a Social Security number and proof of citizenship to approve a mortgage application, a non-QM mortgage lender has the flexibility to fund a mortgage without it.
Reason #5: It’s a high-value property
For properties that exceed the county limit for Fannie Mae or Freddie Mac GSE guidelines, a conventional qualifying mortgage isn’t an option. For 2021, that limit is $584,250 in most counties nationwide with select areas up to $822,375. For mortgage amounts higher than that – even if it’s within your LTV ratio and TDSR – it’s considered a non-qualifying mortgage.
For high-value properties, options include a conventional non-QM mortgage with private mortgage insurance or a jumbo loan.
Are you curious if a non-qualifying mortgage is right for you? At MBANC, we provide mortgage advice to help you make an informed decision. Contact us to determine if one of our quick and easy non-QM mortgage products can make your dream home a reality.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.