This Blog On What Are Non-QM Loans Versus Qualified Mortgages Was UPDATED And PUBLISHED On August 6th, 2019
What Are Non-QM Loans?
- Many borrowers who could not qualify for a mortgage before due to the strict lending guidelines on government and conventional loan programs can now qualify
- The mortgage industry went through a total overhaul after the 2008 Mortgage and Credit Meltdown
- Alternative loan programs such as Non-QM Loans have been launched in recent years
In this article, we will cover and discuss the various types of Non-QM Loans such as bank statement loans for self-employed borrowers and the asset depletion mortgage programs.
New Alternative Mortgage Programs
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 the major changes as did the mortgage industry
- Entire mortgage sectors went obsolete such as 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 was drafted and signed into law in 2010
- Mortgage rules and regulations were created for mortgage loan originators whose scope of work involved origination of mortgages meet minimum lending requirements mandated by the federal government including the QM
- QM stands for Qualified Mortgage
- Purpose of QM is the Ability To Repay QM went into effect on January 10, 2014, by the Consumer Protection Financial Bureau
What Are QM Loans?
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 a 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 Quality Mortgage QM
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:
- 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 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
- 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
- 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.
What Are Non-QM Loans Versus QM Mortgages
Qualified Mortgages are government and conventional loans. 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 20% down payment is required. There is no maximum loan limit caps on Non-QM Loans
Here are the benefits on 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
What Are Non-QM Loans?
- 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 Loan Borrowers
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
What Are Non-QM Loans Versus Government And/Or Conventional Loans
Here are some bullet points on QM Rules with FHA Loan and Conventional Loans where borrowers who do not meet these guidelines, they 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
- FHA requires a 3 year waiting period after the recorded date of a deed in lieu of foreclosure and foreclosure
- Aso 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
Qualifying For Mortgage 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
- 20% down payment is required with 640 credit scores
- Borrowers with 680 credit scores can qualify with 10% down payment
- 660 credit scores require 15% down payment
- 43% debt to income ratios but up to 50% DTI with compensating factors
- Homebuyers who do not meet the above guidelines after a bankruptcy and foreclosure can now qualify for Non-QM Loans
- Again, real estate values are increasing in many areas of the country
- 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
What Are Non-QM Loans For Investment Properties
Non-QM Loans are not just for residential owner-occupied properties.
- Borrowers of investment properties who do not qualify with QM Loans can qualify for Non-QM Loans
- For example, Gustan Cho Associates offers bank statement 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 depends on the individual investor
- Income is derived by taking the borrowers assets and dividing it 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 borrowers retirement account is used as liquid assets
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. The great news is that bank statement loans for self-employed borrowers are back with Gustan Cho Associates. There are no loan limits.
Here how 24 months bank statement loans work:
- 24 months business and/or personal bank statement deposit is used to derive to monthly gross income
- No tax returns required
- If personal bank statements are used, then 100% of all deposits are summed up and divided by 24 months
- That average will be the borrowers’ monthly income
- If business bank statements are used, then 50% of the deposits are used over 24 months and divided by 24 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
What Are Non-QM Loans And Lenders Offering QM Loans
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.
For more information on Non-QM Loans, please contact Gustan Cho Associates at 262-716-8151 via calling or texting for faster response. Borrowers can also email your inquiry to email@example.com. We are available 7 days a week, evenings, weekends, and holidays. The Gustan Cho Team at Loan Cabin Inc. is a direct lender with no mortgage overlays on government and conventional loans. We are correspondent lenders on Non-QM loans.
This BLOG On What Are Non-QM Loans Was UPDATED On August 6th, 2019