Buying a home is part of the American dream, but what if you don't qualify through conventional channels? Self-employed and other non-W2 workers frequently encounter this problem since their proof of income and employment differs from that which lenders typically demand. The good news is that those who do not meet the requirements for a qualified mortgage may be offered a non-qualified mortgage instead. Let's look at the non-QM loan alternative to see whether it's right for you.
What is a Non-QM loan?
A non QM loan is a type of mortgage that is available to borrowers who do not meet the traditional lending qualifications set by the Qualified Mortgage rule. This means that, for example, someone with a lower credit score or who has a higher debt-to-income ratio may still be able to get a mortgage through a non QM lender. Non QM loans are typically more expensive than traditional mortgages, but they can be a good option for people who don't fit within the QM guidelines. Non-qualified loans have more flexible eligibility requirements on DTI, credit scores, and loan amounts.
To better understand what a non-qualifying loan is, let's review the list of requirements for a traditional mortgage:
Income. You must provide pay stubs, W2s, and tax returns to verify your income.
DTI. This is the amount of your monthly income that is paid toward existing debts. Your debt to income ratio should be 43% or lower.
Fees. Your loan fees and points can’t be more than 3% of the loan amount.
Term. The loan term must be 30 years or less.
If you can't offer the items listed above, a non-qualifying mortgage might be a good option for you. Non-QM loans are not government-sponsored or part of Fannie Mae or Freddie Mac.
Benefits of Non-QM loans
Non-QM loans make mortgages more accessible to a larger demographic. They also need less formal documentation than other kinds of loans. You don't have to submit W2s, tax returns, or employment verifications. Bank statements and a list of assets are frequently enough for loan approval with non-QM loans having lower credit requirements than qualified mortgages (up to 100 points lower). Even a 40-year loan term!
Should You Get a Non-Qualified Loan?
A non-QM loan is a good option when you have a stable income, which allows you to make regular, on-time mortgage payments, but can’t meet other qualifying requirements. Sadly, many believe that Non-QM loans are subprime when, in reality, they simply have a different set of requirements than qualified mortgages. Other than the loan documents required, the lending process is identical.
Where to get Non-QM loans
Because of the financial risk involved in providing loans that are not backed by federal government programs, non-QM loans are less widely available. And just like any other loan, non-QM loans have their pros and cons.
Avance Group; Your Local Mortgage Broker
If you're thinking about purchasing a home in New Mexico, Avance Group is a local mortgage broker that can help you with your down payment assistance, home purchase, refinance, new construction, renovation, and more! Call us today at 817.524.6655 to get started!