NON-QM Jumbo Loans For Self Employed Borrowers

This Article Is About NON-QM Jumbo Loans For Self Employed Borrowers

A Jumbo loan is often referred to as a non-conforming loan. Conventional loans are called conforming loans. This is because they need to conform to FANNIE MAE or FREDDIE MAC mortgage lending guidelines\Home prices have been skyrocketing for the past five years. Both the Federal Finance Housing Agency (FHFA) and HUD have been increasing the maximum conforming loan limit and FHA loan limit for the past five years. The maximum conforming loan limit set by the Federal Housing Financing Agency (FHFA) for 2021 is $548,250.

VA loans no longer have a maximum loan limit effective as of January 1st, 2020. Any mortgage loans higher than the conforming lending limits capped by FANNIE MAE or FREDDIE MAC are called non-conforming loans or Jumbo Loans. Non-QM Jumbo Loans are an alternative form of financing. Non-QM Loans for self-employed borrowers do not require any income tax returns. 12 months of bank statement deposits are averaged and used as the monthly income of borrowers on non-QM jumbo loans.

The maximum debt to income ratio allowed on non-QM jumbo loans is 50% loan to value with compensating factors. There is no private mortgage insurance premium required on non-QM jumbo loans. A 10% to 30% down payment is required. The amount of down payment depends on borrowers’ credit scores, the type of property, and the length of time had a prior bankruptcy and/or housing event.

Traditional Jumbo Mortgages

Not all mortgage companies offer Jumbo loans. Lenders that do offer Jumbo loans often have tougher mortgage guidelines than lenders offering government and conventional loans.

Jumbo lenders require the following:

  • higher down payments
  • higher credit scores
  • reserves
  • lower debt to income ratios than conventional mortgage lenders

Jumbo mortgage rates are normally 0.50% to 1.0% higher than traditional conforming mortgage rates:

  • The majority of mortgage companies require a minimum of a 20% to 25% down payment on traditional jumbo loans
  • Gustan Cho Associates offers 90% LTV  traditional jumbo loan programs which means the borrower only needs to put a 10% down payment
  • The debt to income ratio on our 10% down payment jumbo loan program is 50% DTI
  • The minimum credit score requirement on our traditional 90% LTV jumbo loan program is 660 FICO
  • Other lenders will require a 700 plus credit score on traditional jumbo loans.
  • Non-QM and alternative mortgage lenders require credit scores down to a 500 FICO

Larger down payments are required on high-balance non-QM loans. There is no mortgage insurance required with non-QM jumbo loans.

How Can I Get The Best Rates On Non-QM Mortgages

As mentioned earlier, Jumbo mortgage rates are higher than conforming mortgage rates. Why are Jumbo loan mortgage rates higher?

The main reason why mortgage rates on Jumbo loans are higher is that the federal government does not back Jumbo loans. Conventional loans are bought on the secondary market by Fannie Mae and/or Freddie Mac. Government loans are insured and backed by FHA, VA, and USDA. Jumbo loans are backed by private investors. Jumbo mortgages are riskier than other loan programs. That is why Jumbo mortgage lenders have higher mortgage rates and require tougher lending guidelines than other mortgage loan programs.

California Real Estate: High-Cost Areas, Jumbo Conforming Loan Limits

California has one of the highest real estate prices in the nation and the average loan size in California is $587,000 whereas, in other parts of the country, the average loan size is $325,000. California has a housing shortage despite the mass exodus of Californians to other lower-taxed states with affordable housing. This is due to the heavy environmental regulations by California’s Democrats and the land shortage near major cities like Los Angeles, San Francisco, Sacramento, San Diego, and Orange County. Fannie Mae and Freddie Mac were taken over by the federal government in late 2008 during the real estate and mortgage collapse. This takeover happened as the housing market throughout the country was tanking like never before in history. The federal government intervened.

In 2009, the United States Congress created and passed the American Recovery and Reinvestment Act of 2009. This law boosted the normal conforming mortgage limit from the standard $548,250 to higher loan limits in many parts of the country. This increase in loan limits was a designated high-cost area, especially areas throughout the state of California.

Buying Homes In High-Cost Areas With NON-QM Jumbo Loans

NON-QM Jumbo Loans

Prior to the passage of this new mortgage lending increase law, many homeowners in California could not purchase homes in many high-cost areas of California such as the following areas

  • San Francisco
  • San Diego
  • Orange County
  • Los Angeles
  • Irvine
  • Sacramento
  • San Francisco

Now homebuyers in high-cost areas could borrow conforming conventional loans up to $679,650 without needing to qualify for Jumbo loans.

Qualifying For A Jumbo Loan Programs

Jumbo loan eligibility requirements vary from lender to lender. In general, there are several factors to qualify for Jumbo Mortgages:

  • Jumbo Loans are considered riskier loans
  • Jumbo mortgage rates are credit driven and loan to value-driven

To qualify for a Jumbo Loan with the best mortgage rates, a home buyer needs the following:

  • a credit score of 740 plus
  • down payment of 25%
  • debt to income ratio below 40% DTI

This does not mean that borrowers who cannot meet the above requirements will not qualify for a Jumbo loan. But their terms and rates can be worse.

Down Payment On Traditional Jumbo Loans

In general, the larger a down payment a homebuyer puts down, the less risk a mortgage lender has. Jumbo mortgage loans normally require a 20% to 25% down payment. However, if the home buyer puts that extra 5% down payment, the Jumbo mortgage rates will be lower since the Jumbo mortgage lender has less risk.

Same with credit scores. To qualify for a Jumbo mortgage loan, the bare minimum credit score required is normally 700 credit score. However, a 700 credit score is considered a super low credit score when it comes to Jumbo mortgages. There are price adjustments for every 20 points on Jumbo mortgage rates. A person who has a 720 credit score will pay a higher Jumbo mortgage rate than a person with a credit score of 740 or higher.

Most Jumbo mortgage lenders will cap the maximum debt to income ratios at 40% DTI for Jumbo mortgage loan applicants. Gustan Cho Associates has a traditional jumbo mortgage program that will cap debt to income ratio on jumbo loans at 50% loan to value.

10% Down Payment Jumbo Loan Program: 90% Loan To Value, No Mortgage Insurance Required

10% Down Payment Jumbo Loan Program

Gustan Cho Associates now offers NON-QM Jumbo Loans with a 10% down payment with no private mortgage insurance required. No income tax returns are required on NON-QM Loans for self-employed borrowers. The minimum credit scores required are 620 to qualify for non-QM jumbo loans. To qualify please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Gustan Cho Associates has a national reputation for not having lender overlays on government and conventional loans. Gustan Cho Associates also has a national reputation for being a one-stop mortgage shop for having dozens of non-QM and alternative mortgage programs on owner-occupant homes, second home financing, and investment properties. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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