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Not every homebuyer is a good fit for a traditional loan. But if you don’t qualify for a traditional qualifying mortgage, no worries – you can still get financing with a non-QM loan.
While it can be slightly more complicated to qualify for a non-QM loan than a standard one, today’s underwriting technology is helping to make it more possible. Here’s what you need to know about qualifying for a non-QM mortgage!
Qualified mortgages are the most typical type of mortgage. They’re government and conventional loans backed by organizations like FHA, VA, Fannie Mae or Freddie Mac. They’re designed to protect lenders and homeowners from risks.
There are several strict guidelines for QM loans. For example, the borrower’s debt-to-income ratio cannot exceed 43%. Balloon payments and interest-only payments aren’t allowed, and the term cannot exceed 30 years. Borrowers must have a good credit score, steady income, and no recent bankruptcies or foreclosures. All these rules are designed to reduce the risk of the borrower defaulting on the loan.
A non-qualified mortgage, or non-QM loan, is essentially any mortgage that doesn’t meet the criteria of a QM loan. Non-QM loans are not insured, guaranteed, or backed by government or government-sponsored organizations. However, it is not accurate to say that they are “riskier” loans. They simply have different requirements.
For example, if your income fluctuates a lot throughout the year, the bank might have taken one look at your pay stubs and decided you were too risky for a QM loan. But with a non-QM loan, your lender is able to look at other qualifiers beyond the typical pay stub, W2 and tax return. They’ll determine how much they can lend you based on your unique circumstances.
Lenders are always concerned about your ability to repay the loan, whether you get a QM or non-QM loan. In either type of loan, the qualification process will determine whether you’re likely to be able to repay the loan or not.
If you don’t fit the standard criteria for a QM, your lender will need to take another avenue to determine whether your income and assets are enough to get you approved for a non-QM loan.
They may analyze and verify the following:
Traditionally, a lender would have to ask for various forms of documentation regarding your income and assets. They would have to sift through it manually and make the call based on what they saw.
Today, lenders can do the same thing much more quickly with the help of underwriting technology. By plugging in information about your income and assets, they can quickly determine whether you meet the requirements for a non-QM mortgage.
So, if you don’t qualify for a conventional loan but you still need a mortgage, you can still look into non-QM loans and get a quick answer about whether you qualify. Connect with a lender today and discover your loan options—HWMY will guide you through the process from start to finish!