With the start of a new year and a new decade, it’s the perfect time to move forward with your hopes and dreams. The beginning of the decade could be the perfect time to purchase a new home. Certainly, it’s time to check out options that you never knew existed before.
Maybe you feel like your employment status, credit history, income, or something else will get in the way of obtaining a traditional loan. The reality is that you might just be looking in the wrong places. With a non-QM loan, you have greater flexibility in financing your dream home. Why wait when you could start the path towards the best way to start a new year?
Start the decade creating the home of your dreams with a non-qualified (non-QM) loan.
What is a Qualified Loan?
To understand how a non-QM loan works, you have to start with an understanding of a Qualified, or traditional mortgage.
The Consumer Financial Protection Bureau came up with some rules back in 2014 to ensure that borrowers weren’t getting in over their heads. Banks wouldn’t risk loaning to people who were likely to go into default, and borrowers were protected from unfair loan terms.
Here are the four main parts of a qualified loan:
- Lenders make a note of your income, employment, assets, credit, and debts to get a full picture of your financial status. They want to make sure you can pay back the loan.
- Lenders can no longer stick borrowers with risky loan features like interest-only loans or loan terms that last more than 30 years.
- There is a cap on fees and points. A loan that is greater than $100,000 cannot have lender fees higher than 3% of the total loan amount.
- There is a limited debt-to-income ratio of 43% for qualified loans, even though there are exceptions.
What is a Non-Qualified Loan?
A loan that doesn’t meet the standards of a traditional loan is considered a non-QM loan. These types of loans offer great flexibility for borrowers, especially for those who don’t fit the typical loan seeker. Non-QM loans may appear to be riskier, but they also come with a variety of guidelines. Lenders still have to ensure that borrowers can pay back their loans. Non-QM loans provide more ways to come to this conclusion.
Am I a Candidate for a Non-QM loan?
You don’t necessarily have to have been turned down for a traditional loan to seek a non-QM loan. Those who do find it challenging to qualify for typical loans might be most interested in non-QM loans. At the same time, there are a variety of reasons you might look into obtaining a non-QM loan.
You are self-employed
People who work for themselves often have non-standard payment schedules and income streams.
A traditional loan is going to ask for copies of your W2s to document how much money you make. If you work for yourself or participate in the gig economy, you may not have W2s.
More importantly, you may see ebbs and flows in your paychecks. For example, someone who owns a seasonal business may have impressive check stubs during a portion of the year. If your lender asks for W2s during a low season, it may look like you don’t have much of an income. This may lead to your loan being rejected.
You’re a real estate investor
Traditional loans can be tough for those looking to either flip a house or to own rental property.
Flipping a home often means selling the house soon after making the initial purchase. Your ability to repay the loan is based more on your ability to sell the restored house over your regular paycheck. The same is true for real estate purchases meant to become a rental property.
When done correctly, the monthly rent covers the mortgage. In these cases, a traditional loan may not be appropriate.
You are a foreign national
People who haven’t been in the USA their entire lives might find they lack a credit score, let alone have enough credit to make a large purchase. Building credit from scratch can take far too long, so foreign nationals often look at non-QM loans to solve their house-purchasing needs.
You are a prime borrower
Prime borrowers are people who have sufficient credit for a traditional loan but want something riskier. A great example is someone who plans on flipping a house. This person is often willing to take a risker loan, like an interest-only loan, to free up cash to work on the house. Since the plan is to sell the house as soon as possible, the loan will be paid back before the risk really sets in.
You have significant assets
Perhaps you don’t have the right credit score to obtain a traditional loan. At the same time, you have substantial assets. In these cases, a conventional lender is going to pass on offering you a loan. A non-QM lender, however, takes your assets into account.
Move Your Life Forward with a Non-QM Loan
Regardless of whether you’d qualify for a traditional loan or you’re just testing the waters, a non-QM loan offers incredible flexibility. Instead of trying to shoehorn your lifestyle to meet the traditional loan requirements, you can show your worthiness to borrow in a way more suited to you. If you’ve ever felt like owning a home was out of reach, this is the year that everything changes.
Don’t just sit around dreaming of getting your dream home! Check into non-QM loans as a way to take charge of this decade, and to turn your daydreams into reality.