Benefits Of Using Non-QM Mortgages For Home Buyers
This article is about Benefits Of Using Non-QM Mortgages For Home Buyers
Advantages And Benefits Of Using Non-QM Mortgages For Home Buyers:
- Preparing for a mortgage can be a difficult process in 2020
- Since the real estate crash of 2008, the federal government has stepped in to oversee mortgage regulations
- The restrictions and guidelines have made it harder to obtain a home loan
- FHA, VA, Conventional, and USDA mortgage home loans have become harder to qualify for
- Many potential mortgage borrowers do not know of the NON-QM mortgage loan sector
- In this blog, we will detail some advantages of utilizing a NON-QM mortgage loan to buy or refinance your home
Understanding The Benefits Of Using Non-QM Mortgages Versus Government And/Or Conforming Loans
First, we must understand what NON-QM stands for QM MORTGAGE stands for a qualified mortgage.
- A qualified mortgage is anything overseen by the federal government such as Fannie Mae, Freddie Mac, FHA, VA, and USDA
- All of these mortgage products have specific guidelines overseen by government-sponsored entities or government agencies such as The U.S. Department of Housing and Urban Development (HUD)
- Gustan Cho Associates offer all qualified mortgage products without LENDER OVERLAYS
- A lender overlay is an additional guideline put in place by a specific lender to fit their lending criteria
- Some of the most common lender overlays are credit score related
- Many lenders will tell you a 620 credit score is required to qualify for a VA or FHA mortgage
- However, this is not the case
- An FHA mortgage can go down to a credit score of 500 (with a 10% down payment)
- A VA mortgage does not have a minimum credit score requirement
- If you are dealing with a lender who tells you need to have a specific score, you are more than likely running into a lender overlay
Please give Mike Gracz a call or text on 630-659-7644 to see if an overlay is getting in your way of homeownership.
Non-QM Home Mortgages Defined
What exactly is a NON-QM mortgage loan?
- A NON-QM mortgage loan is exactly what it sounds like, a NON-Qualified Mortgage
- A non-qualified mortgage does not have to follow agency guidelines
- NON-QM mortgage products are more lenient than a qualified mortgage product
- Their guidelines are put in place by the specific lender/ investor (not a government agency)
- They decide what fits their criteria and what does not
- They also have the ability to make exceptions on a case-by-case basis
These loan products are part of a fast-growing mortgage sector and are projected to continue to gain popularity in the coming years.
Exceptions By Mortgage Underwriters
Example of an exception:
Some NON-QM mortgage products have a RESERVE REQUIREMENT.
- In the past, we have been able to get the reserve requirement waived
- This is something that would be impossible on a conventional or FHA mortgage
- The reserves are required by a firm guideline and there is no way around it
- But since a NON-QM mortgage loan does not have to follow agency guidelines, the specific lender is able to make exceptions based on the overall risk of the file
- As long as a borrower qualifies on the other requirements, most of the time, the underwriter will not deny a file due to a lack of reserves
Small exceptions like this can allow thousands of Americans to qualify for a home loan.
Differences Between Non-QM Versus Qualified Mortgages
What makes NON-QM different?
NON-QM mortgage loans do not have to follow agency guidelines, so they are a lot more lenient when it comes to derogatory events such as foreclosures, short sales, deed in lieu, mortgage late payments, and bankruptcies. You can open a new NON-QM mortgage loan just one day after a foreclosure! For a conventional loan you have to wait seven years, FHA loan you need to wait three years, and a VA loan you have to wait two years after a foreclosure, short sale, or deed-in-lieu. As you can see this will really help speed up the process of you being a homeowner again. This is an advantage because you can continue to build equity and own home versus making a landlord rich.
Mortgage Rates On Non-QM Loans Versus Traditional Mortgage Loans
Since a NON-QM mortgage loan is riskier, they do have slightly higher interest rates associated with them.
- However, you are still a homeowner and building equity in your home
- This is an advantage to you
- This is because while you are seasoning the waiting period to qualify for a regular mortgage, you are still building equity in your property
- You can refinance out of a NON-QM mortgage loan as soon as your waiting period has elapsed
- Homeownership is important for long-term financial success
- Most of the wealthiest people in the world own a significant amount of real estate
- A primary home is a great investment and can be used as a stepping stone to upgrade your home when your family grows or enjoy extra liquidity if you downsize later in life
Owning a home is a key part of the American Dream!
Other Benefits Of Using Non-QM Loans
What else do NON-QM mortgages offer?
- Alternative income
- NON-QM mortgages allow alternative income loans such as BANK STATEMENT LOANS, one-year tax return mortgages, and even ASSET DEPLETION qualifications
- If you are self-employed, it may be difficult to qualify for a mortgage based on your federal income taxes
- Any write-offs on your tax returns will usually be counted against your adjusted gross income, making it difficult to qualify for a standard mortgage
- The two-year average can be tough on many self-employed borrowers
- If your most recent year is very strong, you may want to look into a one-year tax return NON-QM loan program
- This means your income will be calculated off your most recent IRS return, not a two-year average
- If you have a large chunk of assets, you may qualify for an asset depletion NON-QM mortgage
Your income will be calculated by your total assets, which can be a great alternative for retired individuals or anyone with large sums of capital!
Non-QM Mortgages Are Becoming Increasingly Popular
We expect to see NON-QM mortgages grow even more in the years to come. If you have been turned down for a standard mortgage, please give us a call. You may be running into a lender overlay or may be eligible to use a NON-QM mortgage product. We are available seven days a week, please call Mike Gracz on 630-659-7644 for a one-on-one mortgage consultation. The mortgage process can be incredibly confusing, we are here to help. Gustan Cho Associates Mortgage Group is a one-stop mortgage lender who strives to offer the best customer service in the industry!