What Are Non-QM Loans Compared To Qualified Mortgages

Gustan Cho Associates are mortgage brokers licensed in 48 states

Non-QM loans are mortgages that don’t meet the requirements for Qualifying Mortgages (QM). Non-QM loans are not backed by the government like FHA, VA, and USDA loans, and they don’t conform to the standards of Fannie Mae or Freddie Mac. Borrowers who have unusual sources of income, are experiencing credit challenges, or need to purchase an investment property can often benefit from a non-QM loan. In this article, we will cover and discuss the various types of non-QM Loans such as no-doc mortgages, bank statement loans for self-employed borrowers, and asset depletion mortgage programs.

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New Alternative Nonprime Mortgage Options

New rules and mortgage regulations were implemented. The SAFE ACT was created and launched and new federal agencies were created. The Consumer Protection Financial Bureau, also known by many as the CFPB is the regulatory agency that regulates and enforces mortgage guidelines. The Nationwide Mortgage Licensing System, NMLS, was created and launched to centralize all mortgage companies and loan officers. Never in the history of the United States has a particular industry have gone through major changes as did the mortgage industry. Entire mortgage sectors went obsolete such as the subprime mortgage market. Subprime Mortgage lenders like mortgage giants Washington Mutual and Countrywide Loans went out of business overnight and hundreds of thousands of account executives were left jobless.

The Dodd-Frank Mortgage Act

The Dodd-Frank Mortgage Act was drafted and signed into law in 2010. Mortgage rules and regulations were created for mortgage loan originators whose scope of work involved the origination of mortgages that meet minimum lending requirements mandated by the federal government including the QM. QM stands for Qualified Mortgage. The purpose of QM is the Ability To Repay QM went into effect on January 10, 2014, by the Consumer Protection Financial Bureau.

QM Loans or Qualified Mortgages and the Ability To Repay Rule

The Ability To Repay, or Qualified Mortgage, creates a layer of protection for lenders from liability from mortgage loans and borrowers when originating QM Loans. There are certain bullet points that trigger Qualified Mortgage Mortgage lenders who want to resell their loans on the secondary market to Fannie/Freddie and want their loans insured by FHA, VA, USDA, Fannie, Freddie need to meet QM Standards.

Definition Of Qualified Mortgages

The Definition Of QM, Qualified Mortgage: Qualified Mortgage, or QM Mortgage, is when a lender has qualified a mortgage borrower’s ability to repay their mortgage loan.

Qualified Mortgage requires that the lender has qualified the borrowers:

  • income
  • liabilities
  • monthly debt payments

This is done so the borrower does not take on more debt than to exceed 43% debt to income ratio of their pre-tax monthly income.

Qualified Mortgage Guidelines

Qualified Mortgage also requires that borrowers not be charged more than 3% in total fees and points: Qualified Mortgage mandates that a lender does not issue riskier and/or overpriced mortgage loans such as loan programs that have features such as the following:

  • Pre-payment penalties
  • Balloon payments
  • Extended interest-only loans such as 40 plus year interest-only loans

Negative amortization loans such as those common prior to the mortgage meltdown.

Safe Harbor Act Under Qualified Mortgage

The Safe Harbor Act under Qualified Mortgage, offers protection against mortgage lenders against borrowers from lawsuits: Lenders are protected against borrowers who claim that they were extended home loans by lenders when they did not have the ability to repay their mortgage payments. Qualified Mortgage rules were created and launched to protect both lenders and consumers against risky lending that created the mortgage and credit meltdown of 2008.

Comparison Of Non-QM Mortgages Versus Conforming Loans

Lenders who abide by QM Rules can package their loans and resell them in the secondary open market to Fannie and Freddie. They can free up their warehouse lines of credit and originate and fund more mortgage loans. The purpose of Qualified Mortgage is to minimize the origination and funding of loans that are considered risky. Also to void the chances of these loans going bad and into foreclosure. Also to avoid another mortgage meltdown like the one we had with the 2008 mortgage and real estate meltdown. I will cover QM-Loans on a separate blog at a later date and I will focus on What Are Non-QM Loans on this blog.

Non-QM Loan Requirements

Non-QM loans are portfolio loans that do not conform to government and/or conventional mortgage guidelines.

Qualified Mortgages are government and conventional loans. There are no set non-QM loan requirements that is uniform. Each non-QM lender has its own non-QM lending requirements depending on the loan program. Non-QM loans are portfolio loans that do not conform to government and/or conventional mortgage guidelines. Non-QM mortgage rates are higher than traditional loans. 10% to 30% down payment is required. There are no maximum loan limit caps on Non-QM Loans::

Here are the benefits of Non-QM Loans:

  • No waiting period after bankruptcy and/or housing event
  • Asset Completion Loan Program
  • Bank statement loans for self-employed borrowers
  • Late payments in the past 12 months
  • 95% LTV Jumbo Loans
  • 95% LTV Debt Consolidation Loans

Understanding What Are Non-QM Loans Versus Traditional Mortgages

What Are Non-QM Loans:

  • Non Qualified Mortgages are mortgage loans that do not fall into the Qualified Mortgage Category
  • Non Qualified Mortgages are not riskier loans
  • But these loans are often called out of the box
  • Non-QM Loans do not fit the Qualified Mortgage lending guidelines and the complexity of the Qualified Mortgage guidelines
  • Mortgage rates and fees are slightly higher for Non-QM lenders than QM Lenders
  • This is due to the limited liquidity the lender has  to sell their loans on the secondary market
  • Also due to the lack of protection that QM Loans offer
  • Non-QM Loans cannot be sold to Fannie Mae and Freddie Mac

Are normally sold to other secondary markets to private investors or held by the lender under their own portfolio.

Non-QM Loans For Bad Credit 

A qualified Mortgage requires a mandatory waiting period after bankruptcy and foreclosure in order for a home buyer to qualify for a mortgage. Borrowers who do not meet the minimum mandatory waiting period after bankruptcy, deed in lieu of foreclosure, foreclosure, and short sale who cannot qualify with a QM Loan can now qualify with Non-QM Loans. There is no waiting period after a foreclosure or short sale to qualify for Non-QM Loans at Gustan Cho Associates.

With real estate values skyrocketing in many parts of the country, homebuyers can become homeowners with Non-QM Loans and can refinance later after they can qualify for QM Loans.

Using Non-QM Loans Versus Conforming Mortgages

Here are some bullet points on QM Rules with FHA and Conventional Loans where borrowers who do not meet these guidelines now can qualify for Non-QM Loans:

  • FHA and VA Home Loans require a 2-year waiting period after Chapter 7 Bankruptcy discharge
  • Fannie Mae and Freddie Mac require a 4-year waiting period after a Chapter 7 Bankruptcy discharged date for Conventional Loans
  • HUD, the parent of FHA,  requires a 3 year waiting period after the recorded date of a deed in lieu of foreclosure and foreclosure
  • Also three years after the date of the finalized short sale date to qualify for an FHA Loan
  • VA has a two year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for VA Home Loans
  • Fannie Mae and Freddie Mac require a four year mandatory waiting period from the recorded date of a deed in lieu of foreclosure and/or date of a short sale to qualify for a Conventional Loan

Fannie Mae and Freddie Mac will require a seven-year waiting period from the recorded date of foreclosure in order for a borrower to qualify for a Conventional Loan.

Mortgage Loan Requirements After Housing Event And Bankruptcy

There are many home buyers who have recovered after their bankruptcies and foreclosures. However, they cannot qualify for a mortgage due to not meeting their waiting period. With Non-QM Loans, these folks can now qualify for a mortgage with Non-QM Loans with no waiting period after a housing event 30% down payment is required. The debt to income ratio requirements can go as high as 50% DTI with compensating factors.

Non-QM Mortgages One Day Out of Bankruptcy And Foreclosure

Homebuyers who do not meet the guidelines on government and conventional loans after a bankruptcy and foreclosure can now qualify for Non-QM Loans. Again, real estate values are increasing in many areas of the country and non-QM loans benefit homebuyers who cannot qualify for traditional mortgages. Homebuyers now do not have to miss an opportunity to purchase a home due to not meeting their mandatory waiting period after a bankruptcy and foreclosure.

Non-QM Mortgages for Investment Properties

Non-QM Loans are not just for residential owner-occupied properties. For example, Gustan Cho Associates offers bank statement loans, no-doc loans, asset-based loans, and no income/no tax returns loans via Non-QM Loan Programs

Asset Depletion Loan Programs

Our Asset Depletion Loan Program offered at Gustan Cho Associates is ideal for borrowers with assets but no traditional income. Asset Depletion Mortgage Guidelines depend on the individual investor. Income is derived by taking the borrower’s assets and dividing them by 60 months. The resulting number is the borrower’s monthly income. Mortgage Underwriters use 100% of the assets that are considered liquid assets. 70% of the assets in a borrower’s retirement account are used as liquid assets.

Read more https://gustancho.com/asset-depletion-mortgage-guidelines

Bank Statement Mortgage Loans For Self Employed Borrowers

Self Employed borrowers had been having a difficult time qualifying for mortgages since the 2008 Great Recession where no doc loans and stated income loans were no longer available.

Self Employed borrowers had been having a difficult time qualifying for mortgages since the 2008 Great Recession where no doc loans and stated income loans were no longer available. The great news is that bank statement loans for self-employed borrowers are back with Gustan Cho Associates. There are no loan limits.

Here is how 12 months bank statement loans work:

  • 12 months business and/or personal bank statement deposit is used to derive to monthly gross income
  • No income tax returns required
  • If personal bank statements are used, then 100% of all deposits are summed up and divided by 12 months
  • That average will be the borrowers’ monthly income
  • If business bank statements are used, then 50% of the deposits are used over 12 months and divided by 12 to get monthly gross income
  • No overdrafts
  • Needs to be the same bank
  • 20% down payment on home purchase or 80% loan to value on refinances

Non-QM Lenders And Mortgage Options On Alternative Lending Programs

There is a huge market for Non-Qualified Mortgage Loan Programs and only a few mortgage lenders offer NON-QM Loans nationwide. Gustan Cho Associates is one of few mortgage consultants that offer Non-QM Mortgages nationwide on a correspondent lending platform.

Understanding Traditional Government And Conventional Loan Requirements

The most common traditional mortgage program today are FHA and Conventional Loans. Government Loans are home loans originated and funded by lenders that are insured by the government. Government loans are for primary owner-occupant home mortgages only. You cannot finance second homes and investment property mortgages with government loans. Conventional loans allow for second home and investment property financing. Non-QM loans are becoming increasingly more and more popular.

Are Non-QM Mortgages Hard Money Loans?

Borrowers who cannot qualify for government and/or conventional loans can qualify for non-QM loans. Non-QM loans do require a higher down payment than government and/or conventional loans. Non-QM loans are not hard money loans. Hard money loans are normally illegal on owner-occupant primary home financing due to the high fees and costs. Hard money loans are for investment properties. Non-QM loans are regulated by RESPA and the CFPB regulates Non-QM mortgages like they do government and conventional loans in protecting consumers against predatory lending. In the following paragraphs, we will discuss and cover the benefits of non-QM loans and who best benefits from using non-QM loan programs.

What Are Government-Backed Mortgages

There are three types of government loans:

  1. FHA Loans
  2. VA Loans
  3. USDA Loans

HUD, the parent of FHA, is the government agency that is in charge of FHA loans. HUD’s mission is to promote homeownership to hard-working Americans. HUD creates the lending guidelines on FHA loans. FHA loans are very popular among first-time homebuyers, buyers with less than perfect credit, and enable people with lower credit scores to be able to qualify for FHA loans with as little as a 3.5% down payment.

FHA Loan Requirements Versus Non-QM Mortgages

FHA Loans require a 3.5% down payment for borrowers with at least a 580 credit score. Borrowers under 580 FICO down to 500 credit scores are eligible for FHA Loans with a 10% down payment per HUD Agency Mortgage Guidelines.

VA And USDA Loan Requirements Versus Non-QM Loans

VA and USDA loans are government-backed loans that do not require any down payment:

  • VA and USDA Loans offers 100% financing
  • There is no down payment required on VA and USDA loans
  • To be eligible for VA Loans, the borrower needs to be an active and/or retired member of the U.S. Military with a Certificate Of Eligibility (COE)

Due to the government guarantee, lenders can offer government loans with little to no money down at very competitive mortgage rates on primary owner-occupant homes.

Comparing Conventional Loans Versus Non-QM Mortgages

Conventional Loans are not guaranteed by the government. Conventional Loans are called Conforming Loans. This is because they need to conform to Fannie Mae and/or Freddie Mac Guidelines. Lenders need to make sure all conventional loans conform to Fannie/Freddie Mortgage Guidelines if they want to sell the loans they fund to Fannie/Freddie after funding. Fannie Mae and Freddie Mac will not buy mortgages that do not conform to their lending standards. Due to its liquidity, borrowers can qualify for conforming loans with a 3% to 5% down payment at very competitive rates.

Pricing On Non-QM Loans

Non-QM lending programs are portfolio loans. Non-QM Mortgage Rates are higher than government and conventional loans. 10% to 30% down payment is required on Non-QM Loans. Reasons for using non-QM Versus traditional mortgages for borrowers are many. Non-QM Loans are non-conforming loans. There are dozens of different types of wholesale non-QM lenders. Non-QM mortgage guidelines are not uniform like conventional loans. Each lender has its own lending requirements. Non-QM lenders can make exceptions if a borrower may not meet certain guidelines on a case-by-case basis.

Reason Using Non-QM Versus Traditional Mortgages

Borrowers who did not pass the minimum mandatory waiting period after bankruptcy and/or foreclosure on government and/or conventional loans are a Reason for Using Non-QM Versus Traditional Mortgages. Non-QM Loans have no waiting period requirements after bankruptcy and/or housing event. Homebuyers can qualify for Non-QM Home Loans one day out of foreclosure, deed in lieu of foreclosure, short sale, bankruptcy. FHA, VA, USDA, and Conventional Loans. Conventional Loans have mandatory waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale.

Non-QM Versus Traditional Mortgages On Waiting Period Requirements After Bankruptcy And Foreclosure

Non-QM Mortgages have no waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. Government and Conventional Loans have a mandatory waiting period after bankruptcy and housing events.

Here are the waiting period requirements after bankruptcy and a housing event on government and conventional loans:

  • FHA and VA require a two-year waiting period after a Chapter 13 Bankruptcy discharge date
  • There is a three year waiting period on FHA and USDA Loans after foreclosure, deed in lieu of foreclosure, short sale
  • There is a three year waiting period after bankruptcy to qualify for USDA Loans
  • There is a two-year waiting period to qualify for VA Loans after foreclosure, deed in lieu of foreclosure, short sale
  • Borrowers can qualify for VA and FHA Loans during Chapter 13 Bankruptcy repayment plan
  • There is no waiting period after Chapter 13 Bankruptcy to qualify for VA and FHA Loans
  • There is a four year waiting period on Conventional Loans after Chapter 13 Bankruptcy discharge, Chapter 13 dismissal date, deed in lieu of foreclosure, and short sale
  • The waiting period is 7 years after a standard foreclosure to qualify for conventional loans
  • There is a two year waiting period after the Chapter 13 discharge date to qualify on conventional loans

The reason for using non-QM versus traditional mortgages is if borrowers did not meet the above waiting period guidelines on government and conforming loans.

Other Reason Using Non-QM Versus Traditional Mortgages

Non-QM Versus Traditional Mortgages

Other benefits and reasons using Non-QM Versus Traditional Mortgages are the following:

  • No maximum loan limits
  • No private mortgage insurance
  • Late payments in the past 12 months allowed
  • Credit scores down to 500 FICO
  • Bank statement loans for self-employed borrowers with no income tax returns are required
  • Asset Depletion Loan Program where income is not an issue
  • Exceptions can be made on Non-QM Loans on a case by case basis

For more information on Non-QM Loans, please contact us at Gustan Cho Associates at 262-716-8151 via calling or texting for a faster response. Borrowers can also email your inquiry to [email protected] We are available 7 days a week, evenings, weekends, and holidays. GCA Mortgage Group is a national mortgage company with no lender overlays on government and conventional loans. Gustan Cho Associates has dozens of non-QM wholesale lending partners. A large percentage of our business at GCA Mortgage Group are Non-QM loans.

NON-QM Loans And Guidelines On Purchase And Refinance Transactions

The team at Gustan Cho Associates is very optimistic about the housing market forecast for 2022. Despite the coronavirus pandemic, the change in political parties and political turmoil, skyrocketing inflation numbers, 2021 was a historic year for the housing and mortgage markets. Home prices continue to rise despite the coronavirus economic impact due to the high demand. There is more demand for homes versus inventory. Home sellers are raking it in with double-digit appreciation.

Non-QM Loans Attracting More People To Invest In Real Estate

Home values have skyrocketed double digits in the past seven years. The Federal Reserve Board has lowered interest rates to zero percent, marking it the first time rates were at 0% percent in the history of the United States. Zero-interest rates by the Central Bank sent mortgage rates plunging to historic lows. Many homebuyers who planned on buying a home in a few years could not resist the temptation of historic low rates so they pulled the trigger in buying today. 2022 is expected to be another stellar year for the housing market.

Housing Market Forecast To Remain Strong Despite Increasing Rates Due to Non-QM Mortgages

Mortgage rates are expected to increase but will still be low to be attractive for homebuyers. Home prices have never increased so much year after year. Despite high inflation, increasing higher mortgage rates, high home prices, demand for homes is expected to remain strong. Due to the many non-QM loan programs, many people are turning to real estate investment due to access to non-QM mortgage loan programs. New non-QM mortgage products launched this year include no-doc mortgages, P and L stated income loans, rental income only investment property mortgages, asset-depletion, fix and flip mortgages without personal guarantee. 

Gustan Cho Associates has never been busier due to its no lender overlays on government and conventional loans as well as its non-QM loan programs.

2022 Housing Market Forecast

There have already been some exciting announcements in the mortgage industry. We expect 2021 to be busy especially when it comes to NON-QM mortgage lending. Since all of the major lending agencies such as FREDDIE MAC, FANNIE MAE, USDA, FHA, and VA are currently overseen by the federal government, guideline requirements have become strict. This can affect your ability to qualify for a mortgage. If you have had trouble in the past with derogatory credit issues such as a foreclosure, you may want to look into a NON-QM mortgage loan. In this blog, we will detail what a NON-QM mortgage loan means, some of the new loan products for 2021, and how to apply for a NON-QM mortgage with Gustan Cho Associates. In this article, we will cover and discuss the most updated NON-QM Loans And Guidelines On Purchase And Refinance Transactions.

NON-QM Loan Guidelines Versus Qualified Mortgages

A NON-QM mortgage loan stands for a non-qualified mortgage. A QM MORTGAGE is overseen by the major agencies. For example, FHA, conventional, USDA, and VA mortgages are considered qualified mortgages. These have very cut-and-dry mortgage guidelines that must be met. Some of these mortgage guidelines have 7-year time requirements before being able to apply for a qualified mortgage.

Updated Non-QM Mortgage Options For Owner-Occupant, Second Homes, and Investment Properties

Now that you understand what a qualified mortgage is, a NON-QM mortgage is simply outside of that realm. Yes, a NON-QM mortgage does have its own set of guidelines, but they are much more lenient. Especially when it comes to derogatory credit events such as a foreclosure, deed-in-lieu, or short sale. You can be one day out of foreclosure and still qualify for a NON-QM mortgage. NON-QM mortgage loans are nothing new, they’ve been around for years. Thousands of Americans have already utilized them to purchase or refinance their properties. This is a great tool to build equity and not make a landlord rich.

UPDATED Non-QM Loans And Guidelines And New Products

 Non-QM Loans And Guidelines And New Products

New NON-QM loan products for 2020. 85% LTV cash-out refinances; In 2019, both FHA and VA lowered their maximum loan-to-value (LTV) requirements for cash-out refinance mortgage loans. Now only a veteran can use a qualified mortgage to get more than 80% loan-to-value out of their property during a cash-out refinance. So, if you are not a veteran, even with an FHA loan, you are limited to 80% loan-to-value.

That’s where this NON-QM mortgage loan can really help. NON-QM still allows 85% loan-to-value cash-out refinance mortgage transactions. This extra 5% can help you pay off debt, help pay for your kids’ college, complete home repairs, and even fund investment opportunities. While the loan-to-value requirements are put in place to protect your house from equity stripping, these refinance transactions can put thousands of Americans in a better overall financial situation.

Unique And Alternative Non-QM Mortgages

Platinum NON-QM products. In the last few months of 2019, a few of our NON-QM investors have started introducing PLATINUM NON-QM mortgage products. The rates aim to be closer to conventional mortgage rates for high credit score borrowers who may not qualify for a conventional mortgage

Besides competitive interest rates, these loans allow a large number of Americans to enter mortgage financing where they may not be able to with Fannie Mae or Freddie Mac guidelines.

  • Up to 90% LTV with 680 Credit Score
  • Max Cash out up to $1 Million
  • 12 or 24 Months Bank Statements can be used for income
  • 1-year documentation program available (W2 or tax return)
  • ARM, FIXED, or Interest Only Options available
  • Cash-out funds can be used for reserves

Credit/Life event seasoning 4 yrs:

  • short sale, foreclosure, deed-in-lieu, loan modification, and 120-day mortgage late payments
  • Jumbo loan amounts up to $ 2.5 M
  • DTI Up to 50%

Gustan Cho Associates offers non-QM mortgages one day out of bankruptcy and foreclosure.

Non-QM Loans Where No Income Tax Returns Are Required

Non-QM Loans Where No Income Tax Returns

We still have all of our other than NON-QM mortgage products available.

  • Everything from bank statement loans, one-year tax return loans, investment property loans, Fix and Flip mortgages, and more
  • We have a Full Slate of NON-QM loan products that most lenders do not offer
  • If you are having trouble qualifying for a mortgage, please give us a call

We would love to help you with your NON-QM mortgage needs.

Pre-Payment Penalty On Non-QM Loans

A frequently asked question about NON-QM mortgage loans; Is there a prepayment penalty? If the NON-QM mortgage loan is on a primary residence, there is no prepayment penalty. Depending on the loan product, there can be prepayment penalties for investment properties or second homes for a NON-QM mortgage. Usually no longer than two to three years. This is an important question to ask. Many borrowers are only in a NON-QM mortgage loan for six months to a year. Gustan Cho Associates complete numerous NON-QM mortgage loans and help refinance our clients out of them as soon as possible. Please call Mike Gracz on 630-659-7644 to discuss refinance options down the road.

Non-QM Lenders With Dozens Of Wholesale Lending Partners

Gustan Cho Associates are specialists in NON-QM mortgage lending. The team at Gustan Cho Associates are also specialists in FHA, VA, and conventional mortgage lending. 75% of our clients have either been denied by their current lender or not gotten the customer service they expect. If you have any mortgage questions, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Traditional Mortgages Versus Non-QM Loans Mortgage Comparisons

Traditional mortgage loans, also called conforming loans, are the most conservative of mortgage products.

There are two types of traditional mortgage loans:

Government Loans:

  • FHA Home Loans
  • VA Mortgages
  • USDA Loans

Conventional Loans:

  • Fannie Mae
  • Freddie Mac

Government And Conventional Loans

Government Loans are originated and funded by a particular government agency in the event borrowers default on their loan. Lenders fund government loans at low mortgage rates and low down payment and/or no down payment due to the government guarantee. In order for the government to guarantee lenders against the borrower defaulting on government loans, lenders need to follow the agency lending guidelines. They have established guidelines for borrowers’ credit scores, incomes, and minimum down payments. For example, a lender may require a credit score between 620 and 740 to make a conventional loan. Sufficient income to pay the mortgage amount applied.

Low Down Payment Mortgage Options For Homebuyers

Down payment requirements are between 5 and 20 percent on conventional loans. HUD requires 580 credit scores for 3.5% down payment purchase loans. Borrowers with 500 and 579 can qualify for FHA loans with an approve/eligible per Automated Underwriting System approval. Any borrowers under 580 credit scores and down to a 500 FICO, FHA requires a 10% down payment.

Conforming Mortgage Guidelines

Conventional loans require borrowers to conform to Fannie Mae and/or Freddie Mac Guidelines. Conventional Loans are also called conforming loans. Any home loans that do not conform to Fannie Mae and/or Freddie Mac or government agency guidelines are called no-QM loans or non-conforming loans. Jumbo Mortgages are called non-conforming loans because Fannie/Freddie’s max loan limit is $647,200. Any loan higher than $647,200 is called Jumbo Mortgages or non-conforming loans. The market for this type of product includes buyers with excellent credit and ready down payment.

Conforming Fixed Rates Mortgages

A traditional mortgage, in its purest form, is a fixed-rate instrument. This product allows borrowers to lock in their interest rate. Most fixed-rate loans are for terms of 15 or 30 years. However, the term can be any length of time that the lender and borrower agree upon. Perhaps 15 or even 40 years. Generally, the shorter the term, the lower the interest rate. Under the terms of a fixed-rate loan, the loan payment is the same each month for the life of the loan. If it is important for a buyer to be able to budget exactly his or her mortgage obligation over the long term, a fixed-rate loan is a very dependable product. Fixed-rate loans are also attractive to home buyers purchasing in a low-interest-rate environment. Several costs are incurred with traditional loans, explained next.

Origination Fees And Closing Costs

How much are the startup fees and closing costs

Origination fees are upfront charges for making a loan. All purchase and refinance transactions consist of closing costs.

  • They serve as compensation for putting the loan in place

Origination fees cover the following:

  • processing the application
  • underwriting fee
  • funding fee
  • other administrative services

Closing Costs can be the following:

  • origination fees
  • appraisal costs
  • title charges
  • recording fees
  • pre-paid (escrows)
  • one year homeowners insurance
  • attorneys fees
  • any other third party charges

Private Mortgage Insurance On Traditional Mortgage Loans

Private mortgage insurance (PMI) is distinguished from the mortgage insurance associated with FHA and Veterans Administration loans.

  • Private mortgage insurance is purchased in the private sector to protect the lender if the borrower defaults

PMI is generally required under a conventional loan—and most loans—when the borrower makes a down payment that is less than 20 percent of the appraised value of the home.

  • Premiums are paid monthly until the loan-to-value (LTV) ratio reaches 80 percent
  • The LTV is calculated by dividing the loan amount by the value of the collateral used for the loan

In order to eliminate PMI, lenders require an approved appraiser to conduct an appraisal of the property and the loan to value needs to be less than 80%.

NON-QM And NON-Conforming Versus Traditional Mortgage Loans

There are instances where homebuyers cannot qualify for traditional mortgage loans and need to seek alternative financing. NON-QM Loans are non-conforming loans that give homebuyers who do not qualify for traditional mortgage loans the opportunity to purchase a home now and refinance later. Agency Guidelines require a mandatory waiting period after housing event (foreclosure, deed in lieu of foreclosure, short sale) to qualify for government and/or conventional loans. Non-conforming loans do not require waiting period requirements after the housing events. Home Buyers may not qualify for Jumbo Loans because they do not have 700 plus credit scores. NON-QM Loan credit score requirements are based on each individual non-QM lender.

Non-QM Loans Versus Traditional Mortgage Loans For Self-Employed Borrowers

What are the benefits of non-QM loans and traditional mortgage loans?

Self Employed Borrowers may not qualify for traditional mortgage loans because of massive losses on tax returns. However, bank statement mortgage loans for self-employed borrowers do not require any income tax returns. Bank Statement Loans for self-employed borrowers average 24 months personal and/or business bank statement deposits and that monthly average is used as borrowers’ monthly income. There are no private mortgage insurance requirements with Non-QM loans and bank statement loans for self-employed borrowers. 10% to 30% down payment is required and the amount required depends on borrowers’ credit scores. For mortgage information and to qualify for non-conforming loans, please contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]

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