NON-QM Mortgages And Bank Statement Loans For Self Employed

Gustan Cho Associates
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NON-QM Mortgages And Bank Statement Loans For Self Employed

This  BLOG On NON-QM Mortgages And Bank Statement Loans For Self Employed Was UPDATED On May 16th, 2019

There are thousands of folks who can afford a home but cannot meet the government and/or conventional mortgage guidelines. Many mortgage borrowers qualified for non-qm loans and bank statement mortgage loans for self employed borrowers prior to the 2008 Real Estate And Mortgage Collapse, however, non-qm loans became extinct after the financial meltdown. Great news is that non-qm loans is now back and so are bank statement mortgages for self employed borrowers where no tax returns are required:

  • The mortgage industry has gone through a total restructure after the real estate, credit, and financial meltdown of 2008
  • Thousands of mortgage lenders went out of business
  • Mortgage products like no doc, bank statement mortgages, or stated income products have become extinct
  • Over half of this country’s mortgage loan originators have quit the business due to the new SAFE ACT
  • SAFE ACT was created by Congress where all mortgage loan originators need to go through federal and state testing, federal and state background investigations
  • Every mortgage loan originators need to go through credit checks where they need to explain all derogatory items on their credit reports including bankruptcies, foreclosures, and collection accounts
  • State mortgage regulators can deny a mortgage loan originator their mortgage license just for having bad credit due to financial irresponsibility
  • Those employed by FDIC banks and credit unions are exempt from this rule

NON-QM Mortgages After 2008 Real Estate Meltdown

Fortunately, all government and conventional loan programs have gotten more lenient after the 2008 mortgage meltdown.

  • Home Buyers who became victims of the 2008 financial credit and mortgage collapse and who had to file bankruptcy or had gone through a foreclosure can now have a second chance in being homeowners
  • Lenders fully understands that the financial collapse of 2008 hurt millions of folks and that these folks credit got ruined due to extenuating circumstances
  • Bankruptcy and foreclosure rates hit a historical peak record
  • Prior to 2008, I did not know of anyone who I knew personally who had a bankruptcy or foreclosure
  • Now, I know hundreds of friends, acquaintances, and family member who have gone through a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale or a combination of above
  • HUD, the parent of FHA, VA, USDA, Fannie Mae, Freddie Mac fully understand home buyers who had prior financial difficulties
  • Mortgage Guidelines were implemented for home buyers with prior bankruptcy or had to go through foreclosure 

Income, Credit, Assets In Mortgage Qualification

Today, as long as borrowers with documented income, can qualify for government and conventional loans. Self employed borrowers and borrowers who did not meet waiting period requirements can qualify for non-qm loans:

  • Bad credit, no credit, prior bankruptcy, foreclosure, deed in lieu of foreclosure, unsatisfied collection accounts, prior bad payment history will not be a hurdle in qualifying for home loans
  • It is not whether borrowers will qualify for a mortgage, it is when they can qualify for a mortgage with bad credit
  • One important thing is that most mortgage lenders want to see a 12 month timely payment history
  • Old collections and charged off accounts with open credit balances do not have to be paid off
  • Medical collections are exempt from debt to income calculations
  • Mortgage lenders treat medical collections differently than non-medical collections
  • As long as borrowers have documented income and can be verified by the IRS, they will be a homeowner again
  • Self Employed borrowers can qualify for bank statement loans for self employed borrowers with no tax returns required
  • Or if you are a first time home buyer, you will be a first time homeowner

Waiting Period After Bankruptcy And Foreclosure To Qualify For Home Loan

There are certain mandatory waiting periods on government and conventional loans with borrowers with prior bankruptcy or foreclosure. NON-QM Mortgages has no waiting period after bankruptcy and foreclosure:

  • There is a two year waiting period after Chapter 7 bankruptcy to qualify for VA, FHA, USDA Loans
  • Three year mandatory waiting period after foreclosure ( the time clock with foreclosure and deed in lieu of foreclosure starts from the date the deed of the home was transferred out of homeowners name into the mortgage lender’s name or the date of the sheriff’s sale)
  • There is a three year waiting period after the date of the short sale to qualify for FHA and USDA Loans
  • Waiting period after foreclosure, deed in lieu, short sale is two years on VA Home Loans
  • Mortgage lenders do want to see re-established credit after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale
Non-QM Mortgages
Gustan Cho Associates

Re-Establishing Credit After Bankruptcy And Housing Event

How can potential home buyers re-establish credit when they just went through a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale with bad credit?

  • The best and fastest way of re-establishing credit is by getting several secured credit cards
  • 3 to 5 secured credit cards will do the trick
  • Never be late on these secured credit cards
  • Even though there is a deposit with the amount of the credit limit, these secured credit cards will report late payment on credit report
  • Do not get any credit if not intend on making timely monthly minimum payments because it will do more damage than good

To sum it up, as long as home buyers have income they can qualify for a residential mortgage loan.  However, one can have the highest credit scores possible but without qualified income they will not qualify. Working for cash money or writing everything off on income tax returns and do not show income, borrowers will have a problem getting any residential mortgage loan.  Income is the Golden Ticket in getting a residential mortgage loan today on conventional loans. Again, self-employed borrowers can qualify for non-qm mortgages with the bank statement mortgage loan program.

Solutions To Those With Not Enough Income

The great news for borrowers with higher debt to income ratios is that FHA allows borrowers who do not have income or have proof of income. FHA allows borrowers to add family member to become non-occupant co-borrowers. More than one non-occupant co-borrower can be added on FHA Loans:

  • FHA is the only mortgage loan program that allows non-occupant co-borrower to be added to the mortgage loan
  • Non-occupant co-borrower or co-borrowers are added on the mortgage loan note but are not on title
  • Borrower can have more than one non-occupant co-borrower
  • A non-occupant co-borrower needs to be related to the main borrower by either
    • marriage
    • blood
    • law
  • There are lenders that will allow very close friends of the borrower to be non-occupant co-borrowers
  • The friend and the borrower needs to prove that they have known each other for at least five years
  • The non-occupant co-borrowers income will be used to qualify for the mortgage
  • Mortgage underwriters will scrutinize and make sure debt to income ratios are in line for both the non-occupant co-borrowers main property as well as the borrower’s new purchase
  • The non-occupant co-borrowers credit scores will be taken into effect
  • Underwriters will use the lower of either the borrower’s or non-occupant co-borrower credit scores
  • If the non-occupant co-borrower has lower credit scores than the main borrower’s, then the non-occupant co-borrowers credit scores will be used
  • If the borrower’s credit scores are lower than the non-occupant co-borrowers credit scores, then the borrower’s credit scores will be used

If Non-Occupant Co-Borrower Does Not Own A Home, Can Co-Signing Ruin Chances Of Them Getting A Mortgage Later?

The answer to the above question is yes and no.

  • Non-occupant co-borrowers who are currently renting and want to be a homeowner in the near future and need to qualify for own mortgage loan, they need to wait 12 months in order for the co-signed mortgage loan not to count towards debt to income ratios
  • The co-signed mortgage loan will not count towards debt to income ratios as long as they can provide new lender that they are not responsible for the co-signed mortgage loan
  • The non-occupant co-borrower needs to provide documentation that someone else is making the payments
  • This is done by providing 12 months canceled checks and/or bank statements from the person who is actually making the mortgage payments which is the main borrower
  • By doing this, it’s like the mortgage payments do not exist and will not count towards debt to income qualifications

Risks With Being A Co-Borrower

There are more risks in becoming a non-occupant co-borrower.

  • Rewards to being a non-occupant co-borrower is the reward of helping a family member or relative the chance of becoming a homeowner
  • Without the non-occupant co-borrower they would not have qualified for FHA Loan
  • Chances are that they will still be renting
  • If main borrower is late on their monthly mortgage payments, it will really adversely affect non-occupant co-borrowers credit
  • If the main borrower forecloses on their home, Non-occupant co-borrowers are responsible for the deficit judgment if there is one
  • Foreclosure, deed in lieu of foreclosure, or short sale on non-occupant co-borrowers record will affect the chances of getting a new mortgage
  • Same guidelines after foreclosure applies on non-occupant co-borrowers
  • Three year waiting period from the date the deed is transferred out of the borrower’s name into the mortgage lender’s name or from the date of the short sale to qualify for FHA Loans
  • Prior to committing to being a non-occupant co-borrower carefully think about the risks versus rewards
  • Make sure the person you are co-signing for is a financially responsible person and that their income and job is secured

Non-QM Mortgages

NON-QM Mortgages are now back and are becoming increasingly popular. There is no waiting period after a housing event with non-qm mortgages. Home Buyers can qualify for non-qm mortgages one day out of foreclosure or short sale with no waiting period. 10% to 20% down payment is required on non-qm mortgages. The amount of down payment depends on borrowers credit scores. Mortgage Rates are determined by borrowers credit scores and the amount of down payment. There is no private mortgage insurance required on non-qm mortgages. The Gustan Cho Team also offers bank statement mortgages for self employed borrowers. Either 12 or 24 months personal or business bank statements can be used. No tax returns are required on bank statement mortgage loans for self employed borrowers. There are no loan limits on non-qm mortgages. Borrowers with credit scores down to 500 can qualify for non-qm mortgages.

Home Buyers who need to qualify for government, conventional, or non-qm mortgages with a direct/correspondent lender with no overlays on government and conventional loans, please contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

Gustan Cho NMLS ID 873293 www.gustancho.com

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