Non-QM Terms And Rates Versus Traditional Mortgages

This ARTICLE Is About Non-QM Terms And Rates Versus Traditional Mortgages

Non-QM Terms and rates are different than traditional mortgages. Lenders offer the best mortgage rates and terms for prime borrowers. The more risk a lender takes on, the higher the mortgage rates and less favorable the terms are. Non-QM mortgages are not hard-money loans.

It is illegal for hard money lenders to lend hard money to borrowers who are buying an owner-occupant primary home. You cannot offer teaser and/or balloon mortgages on non-QM loans. Hard money loans are for investment properties. Non-QM loans are still regulated with RESPA guidelines.  Terms and rates on Non-QM depend on the risk the lender needs to take.

Loan Level Pricing Adjustments (LLPAs) will apply on Non-QM mortgages. In this article, we will discuss and cover Non-QM Terms And Rates Versus Traditional Mortgages.

What Are Non-QM Loans?

One important factor homebuyers need to realize is that non-QM loans are not hard money loans. Hard money loans are illegal for owner-occupant primary residences. Lending guidelines on hard money loans are for investment and/or commercial properties. There are strict rules and regulations when it comes to owner-occupant primary home lending. RESPA applies.

Pre-payment penalties are illegal on primary home loans. Teaser rates and balloon mortgages are prohibited on owner-occupant home loans.

So what are non-QM loans? Non-QM loans are portfolio mortgages that are available for primary, second homes, and investment properties. Alternative financing loan programs such as non-QM loans are great loan programs for certain borrowers who do not qualify for government and/or conventional loans.

Borrowers Who Can Benefit From Non-QM Terms

Non-QM loans offer benefits for mortgage borrowers with the following circumstances.

• Recent bankruptcy, foreclosure, deed in lieu of foreclosure, and/or short sale.
• There is no mandatory waiting period after bankruptcy, deed in lieu of foreclosure, foreclosure, short-sale with non-QM loans.
• Jumbo loans with bad credit and/or low credit scores.
• The minimum credit score required on non-QM loans is 500 FICO.
• Bank statement loans for self-employed borrowers with no income tax return are required.
• Borrowers with late payments in the past 12 months, including mortgage late payments.
• Mortgage borrowers with a high student loan balance.
• Other borrowers who cannot qualify for traditional government and/or conforming loans.

Non-QM Terms On Down Payment

Non-QM mortgages require a 10% to 30% down payment on a home purchase. The amount of down payment required depends on the borrowers’ credit scores, type of property, seasoning of the bankruptcy and/or foreclosure, and other risk factors. There is no private mortgage insurance required on non-QM loans. Loan sizes are from $150,000 up to $5,000,000. There is no maximum loan cap on non-QM mortgages.

Non-QM Terms On Mortgage Rates

In general, non-QM mortgage rates are generally higher than government and/or conventional loans. The higher the risk the lender takes, the higher the mortgage rates. However, there are many instances where borrowers can get very reasonable mortgage rates on non-QM loans. For example, a recent borrower got a 4.87% mortgage rate on a $700,000 non-QM jumbo loan. This is because the borrower put a 30% down payment, had a 750 FICO, and had a 28% debt to income ratio. The borrower had full documentation.

The reason the borrower needed to go with a Jumbo Non-QM loan was that he had a foreclosure that was six years old. To qualify for a traditional mortgage, the waiting period is 7 years. There are other instances where borrowers can get a 9.0% mortgage rate. This may be due to a recent bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale, and/or lower credit scores. The lower the borrower’s credit scores, the higher the mortgage rates.

Using Non-QM Loans As A Bridge Loan

Many people use non-QM loans as temporary bridge loans until they can qualify for traditional government and/or conforming loans. For example, it is very difficult to get a traditional government and/or conventional loan if the borrower had late payments on their mortgages in the past 12 months. These are common case scenarios where a homeowner may have sold their home but cannot qualify for a new home mortgage due to the fact they were late in their mortgage payments in the past 12 months. The borrower can purchase a new home with a non-QM loan and one year later can refinance their non-QM loan into a traditional government and/or conforming mortgage. For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates Mortgage Grup is available 7 days a week, evenings, weekends, and holidays.