This Article Is About NON-QM Versus Traditional Mortgage Performance
On this BLOG, we will compare NON-QM Versus Traditional Mortgage performance rates. Statistics on NON-QM Versus Traditional Mortgage provide data that non-QM loans are performing better than traditional government and conforming loans. NON-QM Loans are alternative portfolio loans. These loans are for use by borrowers who do not meet government and conforming mortgage guidelines. NON-QM Loans are not just for borrowers with bad credit. Many borrowers can benefit from non-QM and bank statement loans for self-employed borrowers There are no maximum loan limits, no private mortgage insurance required, and have negotiable terms. By negotiable terms, exceptions can be made in a case-by-case scenario.
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.
Understanding NON-QM Mortgage Processing
Understanding NON-QM mortgage processing, underwriting, funding, and closing processes will give borrowers some insight into the steps involved in the closing. There are many moving parts on non-QM loans since they are portfolio loans. Lenders take on more risk on non-QM loans since government agencies do not insure them and cannot sell these loans to Fannie/Freddie after it closes. T
We will discuss the basic NON-QM Mortgage Process and the parties involved. The buyer gets pre-approved by a lender and enters a real estate purchase contract. The borrower must submit all documents, including the executed real estate purchase contract. The buyer puts the down payment earnest money check with the seller’s agent or title company.
The mortgage process officially starts once the borrower e-signs the loan application. The file gets assigned to a mortgage process. The mortgage processor ensures that all docs are complete and that there are no missing pages. The borrowers will get a notice from the mortgage processor if any documents are required. The processor’s job is to prepare the file for the mortgage underwriter. An experienced mortgage processor will not submit a file to underwriting until the file is complete.
Updated Non-QM Mortgage Loan Programs
NON-QM Loans, launched in 2015 by most lenders, has been a hit from day one. More and more products are coming out. We will discuss the future of non-QM versus traditional mortgage loans on this blog. Gustan Cho Associates recently launched our Asset-Depletion Mortgage, investor cash-flow mortgages, investment property loans, and fix and flip loan programs. In this article, we will discuss and cover NON-QM Versus Traditional Mortgage Performance,
Who Benefits From NON-QM Versus Traditional Mortgage
Borrowers who could not meet government and conforming guidelines now can qualify for alternative financing.
NON-QM Loans has the following benefits:
There is no waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale There is no maximum loan limit. No private mortgage insurance. Down payment requirements are 10% to 20% down payment. The amount of down payment depends on the borrower’s credit scores. Mortgage rates depend on the down payment, credit scores, and other factors like the longevity of previous housing events and/or bankruptcy. We do have 95% LTV Non-QM Jumbo Mortgages for W-2 wage earner borrowers with 720 credit scores with no private mortgage insurance. Bank statement loan programs for self-employed borrowers with no income tax returns required.
NON-QM Versus Traditional Mortgage Guidelines
One major difference between NON-QM Versus Traditional Mortgage is NON-QM requires a larger down payment. The non-QM mortgage guidelines will be listed as follows. 10% to 20% down payment. Down Payment requirements depend on the borrower’s credit scores. Mortgage interest rates depend on credit scores and down payment. Bank statement loans for self-employed borrowers require verification of rent and 3 seasoned credit tradelines. Credit scores down to 500 FICO. No private mortgage insurance and no maximum loan limits. Borrowers can buy down mortgage rates by paying discount points. For primary homes, second homes, and investment properties. Investment homes can close under the name of a Limited Liability Company (LLC). Alternative Financing Programs are becoming increasingly popular.
Performance Of NON-QM Borrowers
A recent survey of non-QM investors found that non-QM loans perform substantially better than government and conventional loans. One investor, in particular, closed and funded 11,000 loans in the past five years. Out of the 11,000 loans funded, only 8 cases of default/foreclosure happened. Other investors have similar performance rates. Due to the high performance of non-QM borrowers, more lenders are launching non-QM mortgages. We see a great market that is up and coming with reasonable mortgage rates.
