Non-qualified mortgages, commonly called non-QM loans, are non-conforming alternative mortgage programs for borrowers who do not qualify for traditional mortgages for one reason or another. No uniform non-qualified mortgage guidelines like those set by the government or conforming loans exist. Each non-QM lender can have its guidelines for its promotional loan program. Lenders normally have a broker or correspondent channel with wholesale non-QM lenders.
Types of Lenders for Non-Qualified Mortgages
Each non-QM wholesale mortgage lender has its own credit, income, asset, and reserve requirements. Lenders can make exceptions depending on the mortgage loan if the borrower has strong compensating factors.
Borrowers who cannot qualify for a non-QM loan program from one lender can qualify at a different lender.
Non-qualified mortgage lenders can also make exceptions to lending guidelines depending on each case scenario. For example, non-QM lender A may require three credit tradelines seasoned for 24 months on a non-QM Jumbo bank statement loan. Some non-prime lenders make exceptions for strong-credit borrowers with reserves.
Can Non-Prime Lenders Make Underwriting Exceptions?
Let’s take a scenario where borrower A is a strong borrower with a lot of reserve money. Most non-prime wholesale lenders require three credit tradelines. If borrower A only has two tradelines, non-QM lender A may make a special exception if this borrower only has two credit tradelines versus the three required.
Gustan Cho Associates has hundreds of non-QM loan programs due to its lending partnerships with over 210 wholesale lenders.
The shortage of credit tradelines will be honored if the borrower is a strong borrower with compensating factors. NEXA Mortgage, LLC, dba Gustan Cho Associates, is a mortgage broker licensed in 48 states with over 210 wholesale mortgage lenders. It offers hundreds of non-QM mortgage options for primary and second homes and investment property financing.
Mortgage Requirements on Non-Qualified Mortgages
There are hundreds of non-qualified wholesale mortgage lenders. Each non-QM lender has its mortgage lending guidelines for its loan programs. Most of our borrowers at Gustan Cho Associates are borrowers of non-QM and alternative mortgage loan programs.
The team at Gustan Cho Associates are experts in originating hundreds of non-qualified mortgage products for owner-occupied, second homes, and investment properties.
Non-QM lenders generally have higher mortgage rates on non-QM loans and down payment requirements than lenders of traditional mortgages. There is no set down payment requirement or set mortgage rate on non-QM loans. Non-QM lenders base the down payment requirements and loan level pricing adjustments requirements on mortgage rates and the risk level of each borrower.
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How Are Down Payments Determined on Non-Qualified Mortgages?
The borrowers’ credit score and down payment combination determine the mortgage rates. The higher the credit score, the lower the rate. The higher the borrower’s credit score, the lower the down payment requirement. For example, a borrower one day out of bankruptcy or foreclosure will need to put down a 30% down payment due to the recent date of the significant derogatory event. Borrowers with bad credit can shop for the best non-QM mortgage rates.
Why Do Borrowers Use Non-Qualified Mortgages?
Non-QM loans are considered riskier loans compared to government and conforming loans. There is no government agency insuring non-qualified mortgages. Non-QM lenders, such as Fannie Mae and Freddie Mac, do not have a GSE to purchase the loans they fund on the secondary market.
High risk means higher rewards. In mortgage terms, high risk by lenders means higher rates and down payment requirements for borrowers.
Down payment requirements on non-QM loans range from a minimum of 10% for prime borrowers to 40% for high-risk borrowers. Generally, most non-QM lenders require an average of a 20% down payment on non-qualified mortgages.
Non-Qualified Mortgages for Specialty Niche Properties
There are many reasons why borrowers use non-QM loans versus traditional mortgages such as FHA, VA, USDA, and conventional loans. In general, most homebuyers or homeowners use non-QM loans because either they do not qualify for traditional loans or they have a niche loan product they need.
There are hundreds of non-qualified mortgages for primary, second, and investment homes such as No-doc loans, DSCR, bank statement, and P and L statement loans.
Borrowers are purchasing or refinancing homes that do not conform to traditional mortgage guidelines, such as homes on large acreages, non-warrantable condos, condotels, homes with no nearby comparable sales, mixed-use properties, hobby farms, investment properties, and new construction homes.
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Non-Qualified Mortgages Versus Traditional Government or Conforming Loans
A substantial number of borrowers use non-QM loans because they do not meet the agency guidelines of government or conforming loans. Borrowers who do not meet the traditional agency mortgage guidelines of FHA, VA, USDA, and conventional loans on a home purchase or refinance often use non-QM loans.
Why Borrowers Use Non-Qualified Mortgages
This section will cover the common reasons borrowers use non-QM loans. Borrowers may have a high debt-to-income ratio due to being self-employed or nontraditional income-wage earners. It may not meet traditional loans’ mandatory credit score requirements, such as jumbo loans. Not meet the waiting period requirements after bankruptcy or foreclosure. Self-employed borrowers or business owners have negative income on their income tax returns for substantial unreimbursed business expenses. They were going over the maximum loan limit of government or conventional loans. Could not qualify for government or conventional loans due to having one or more mortgage late payments in the past twelve months.