What Are Subprime And Non-QM Loans

This BLOG On Subprime Loans And NON-QM Mortgages Are Back Was Updated On May 10, 2017

Borrowers who have bad credit or not enough income due to self employment or other reasons may not qualify for a conventional loan or a low down payment loan offered by FHA, USDA,  and/or  VA. Borrowers who cannot qualify for traditional conforming mortgages may consider subprime loans and NON-QM Mortgages. Because of the higher risk associated with lending to borrowers that have a poor credit history, subprime loans and non-qm mortgages typically require a larger down payment and a higher interest rate.

Subprime Loans Explained

There various types of Subprime Loans and NON-QM Mortgages.  Subprime loans are a great form of alternative financing for home buyers to become homeowners who do not meet the following requirements:

  • There is no waiting period after bankruptcy and/or foreclosure to qualify for a traditional mortgage loan
  • Self employed borrowers who do not show enough qualified income on their tax returns: Bank statement mortgage program
  • Bank State Mortgage Loan Programs are a great alternative financing option for self employed borrowers
  • No doc fix and flip loans is a popular NON-QM Loan Program
  • No doc investment property loans for real estate investors
  • No income verification mortgage loans 
  • Private money lending available on both residential and commercial properties

A subprime loan and NON-QM Mortgage can give a person the opportunity to become a homeowner sooner rather than later, especially in many areas where home prices are appreciating double digit percentage points every year. Alternative Financing may require a larger down payment and have higher mortgage interest rates, but these loan programs give a person the opportunity  to clean up their credit and improve their income profile where they can refinance their subprime and/or non-qm loan into a government and/or conventional loan at a lower rate at a later time. Homeowners who has a mortgage can look at refinancing more than what you currently owe on the house and get cash back for the equity you already have in the home. This cash out could be used to pay off consumer debts, second mortgages, credit cards, auto loans, student loans, or other debts. It could be a good way to clean up a troubled credit history, save money each month and start rebuilding and re-establishing credit worthiness.

Subprime Loans Are Used As Bridge Short Term Loans

Whether it is for a home purchase or refinance, subprime loans should typically be used as a short term solution. Most borrowers of subprime and non-qm loans are folks who use it as a bridge loan until they get their credit and qualified income profile in order so they can qualify for an end loan.  Borrowers of subprime and non-qm loans normally work to clean up their credit and income in order to qualify for a refinance mortgage for better terms and lower mortgage interest rate.

Subprime loans were developed to help higher risk borrowers who do not qualify for traditional home loans obtain a mortgage. Many borrowers with bad credit are good people who honestly intended to pay their bills on time. Catastrophic events such as the loss of a job or a family illness can lead to missed or late payments or even foreclosure and bankruptcy. Now there are mortgage companies that take into consideration events outside the borrower’s control, but not without a price.

Lenders are compensated for risk in the form of interest rates. The higher the lender perceived its risk to be, the higher the rate they will charge for the privilege of borrowing their money. The lower the risk, the lower the rate. Several risk factors are taken into consideration when evaluating a borrower for a subprime mortgage, the most important being your payment and credit history.

Qualification Requirements

The risk tolerance is the number one concern of all lenders. Subprime and NON-QM Loans are considered higher risk loans.

Here is what Non-Qualified Mortgage Lenders take into consideration when underwriting Subprime and NON-QM Loans:

  • Borrower’s debt to income level.
  • Borrower’s employment history
  • Type of property
  • Assets and liabilities as well as other other factors are taken into consideration when determining down payment and/or mortgage interest rates of subprime and non-qm loans.
  • 10% to 20% down payment is required
  • No pre-payment penalties
  • No tax returns nor income verification loan programs 
  • Jumbo mortgages down to 600 FICO

Home buyers who have more questions on Subprime and NON-QM mortgages, please contact us at 800-900-8569 or text Gustan Cho on his cell at 262-716-8151 for faster response or email us at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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