Non-QM Loan
Our Non-QM loan programs are great for people who need flexable employment, credit, and income undewriting guidelines.
What Is A Non-QM Loan?
A Non-QM loan (Non-Qualified Mortgage) is a type of home loan that allows loan applicants to qualify using alternative documentation and/or income methods. Unlike traditional loans, Non-QM loans do not adhere to the underwriting standards set by the Consumer Financial Protection Bureau (CFPB).
There are numerous types of Non-QM loans; however, currently, five main types of Non-QM loans are available for borrowers to apply for based on their circumstances.
During the housing boom in the early 2000s, Non-QM loans were referred to as “subprime” loans. These loans do not meet the traditional income requirements established by the Consumer Financial Protection Bureau (CFPB), which conventional mortgages must follow.
Non-QM Loan Benefits
Flexible Income: When it comes to documenting your income, the most flexible mortgages are Non-QM loans.
Fixed and Adjustable Rates: Non-QM loans are available with either a fixed or adjustable rate since each client has different needs.
Limited Documentation: Some Non-QM loans require only limited documentation to obtain an underwritten approval.
Cash-Out Refinance: If you’re self-employed and need to do a cash-out refinance, consider a Non-QM loan.
Get The Right Non-QM Loan
When buying a home or refinancing a current mortgage, getting the right Non-QM loan is essential for those who can’t qualify for traditional financing. At California Mortgage Finder, you’ll have the opportunity to work with a 20+ year mortgage industry veteran who puts his clients first. Low rates, fast closing, and exceptional service are what we’re known for, and this includes alternative mortgages under the Non-QM loan umbrella.
California Mortgage Finder
We’re the ideal partner for your next mortgage transaction.
Non-QM Loan Requirements
To qualify for a Non-QM loan, you must meet the core requirements of the individual loan program. Since there are five main types of Non-QM loans, we’ll provide a broad overview
Credit
For most Non-QM loans you’ll need a credit score of 620 or higher (sometimes 700 or higher). There are instances were a sub-620 score is allowed if you have significant equity in the property or a very large downpayment.
Income
Depending on the Non-QM loan program, your Debt-To-Income ratio should be below 45%. But some Non-QM loans don’t even have a Debt-To-Income ratio and for those programs a much higher DTI is not an issue.
Equity
Plan on having at least 10% equity in the property (or down payment) to qualify for a Non-QM loan. In some circumstances you’ll need 30% to 50% equity in the property to qualify for a Non-QM loan.
Appraisal
You’ll have to do an appraisal to get approved for a Non-QM loan. And if the property is unique, or a high loan amount, the underwriter may require two appraisals before approving the file and then take the lower of two values.
Asset
There are some Non-QM loans that have no asset requirement and then there are others that have an asset requirement. Talk with your loan officer before you apply to find out if you need assets.
Documentation
There are Non-QM loans that require no documentation, and others that require lots of documentation. For example, a bank statement loan may require 24 months of statements, but a private money loan may require no documents.
Five Types Of Non-QM Loans
Here are the five main types of Non-QM Loans.
Bank Statement Mortgage Loans
One type of non-qualified mortgage is a bank statement loan. This type of mortgage requires a loan applicant to turn in twelve or twenty-four months of bank statements. Depending on the loan applicant, these statements can be business or personal bank statements (sometimes both are required).
Income and expenses reported in the statements are used to determine income, and that amount is used during the underwriting process.
Debt Service Coverage Ratio
Debt Service Coverage Ratio (DSCR) mortgages are designed for real estate investors interested in purchasing or refinancing a non-owner-occupied property (rental). A DSCR loan is a mortgage based on a property’s cash flow, using only two metrics: mortgage debt and income. Maintenance, repairs, management fees, and other property-related expenses are not included.
The attractive part of a DSCR mortgage loan is that the applicant does not need to provide income documentation to qualify. The underwriter’s approval is based on the property’s cash flow. Credit score and loan-to-value ratio requirements are included in the underwriting process.
Individual Tax Identification Number
Individual Tax Identification Number (ITIN) loans are designed for people without a Social Security number but with a tax ID number.
Loan applicants must have a valid work visa, a two-year work history, and a qualifying debt-to-income ratio. Credit history is not required; however, it is preferred. Having a 620 or higher credit score with a two to three-year credit history makes getting approval much more likely.
Rates and fees for an ITIN loan are higher than those for a traditional conventional loan, and applicants are typically required to make a larger down payment.
Asset Depletion
An asset depletion mortgage loan is a home mortgage based on an applicant’s liquid assets rather than their taxable income. It’s excellent for loan applicants who may not have a job, have just transitioned to, or are in retirement.
The underwriter will take the loan applicant’s liquid assets and divide them by 240 or 360 months, and that number will be used to qualify the loan applicant for the asset depletion loan. Liquid assets include;
- Cash-out hand
- Stocks and bonds
- Certificate of deposits
Your physical assets, such as a paid-off car or jewelry, are not included. Only assets that can be sold quickly and have a reasonably self-evident cash value are included. Rates and fees are higher for asset depletion loans, as are the down payment requirements. Check with your loan officer about the underwriting requirements before you apply.
Private Money Loans
Private money loans are also referred to as “hard money” loans. Private individuals or private companies provide these loans. These loans have significantly high rates and fees. Also, private money loans typically have balloon payments.
If you are considering a private money loan, it might be best to have an attorney review the loan documents before you sign them.
Non-QM Loan FAQs
Is There a Pre-Payment Penalty For Non-QM Loans?
There are some Non-QM loans that have a pre-payment penalty that can last two or more years. Before you apply for a Non-QM loan, ask your loan officer if there is a pre-payment penalty.
Can I Get A Non-QM loan with no money down?
No. Typically you’ll need a 10% to 30% down payment for most Non-QM loan programs. If you have any sort of credit issues, anticipate the underwriter will require a higher down payment.
Do Non-QM loans have Mortgage Insurance(MI)?
Usually not since most Non-QM loans require 20% or more down. The few Non-QM options that allow for less of a down payment typically increase the rate to cover the risk of a smaller down payment.
Can I get a Non-QM loan if I am in between jobs or just starting my own business?
No, this won’t work for most Non-QM loans (one exception). You’ll need a steady source of income to qualify for a Non-QM loan. Keep in mind Non-QM loans are for people who have income however documenting that income in the traditional way (ie tax returns) is difficult.
The exception to this is a private money loan that can be based just on the equity in the home. The typical structure of this type of loan allows you to borrower up to 50% of the value of the property without showing any form of employment or income.
Explore Some Of Our Other Popular Mortgage Programs
Conventional
A conventional mortgage is the most common mortgage program in California.
FHA
An FHA mortgage is a great loan program for those with less-than-perfect credit and/or a low down payment.
Second
A second mortgage is a valuable tool that can help individuals purchase a home.