Those looking into home mortgage loans have probably noticed that there are a variety of loan types to choose from. However, sometimes borrowers have extenuating circumstances that don’t always lend themselves to the typical loan requirements.
For those who haven’t been able to qualify for a traditional mortgage or find themselves falling between the cracks qualification-wise, there’s good news. A non-qualified mortgage (Non-QM) loan offers a viable alternative to those who fall under this heading. Before we identify what kind of borrower who would benefit from such a loan, it’s important to define what exactly is a non-qualified mortgage loan.
What is a Non-QM Loan?
Many people have fluctuating or lump sum incomes or are self-employed as independent business owners, entrepreneurs, contractors, hospitality workers, retirees, actors, artists, musicians, etc. These people may have the income but don't necessarily qualify for a traditional mortgage with their tax returns, W-2s or pay stubs alone. Non-QM loans are typically for borrowers with unique income qualifying circumstances such as these. However, not every lender offers these loans. New American Funding, however, does.
Who Can Benefit from a Non-QM Loan?
Self-employed borrowers are often paid sporadically and have more than one stream of income or have difficulty documenting their income, which makes it challenging for them to obtain a qualified mortgage. These individuals typically turn to loans based on 1-2 years of bank statements as opposed to their tax returns.
Prime borrowers or those who are likely to make their loan payments on time and in full) are often keen to take advantage of Non-QM loans since they usually have great credit but are looking to take on a loan that may have interest-only payments or who have a higher than normal debt-to-income ratio.
Near/non-prime borrowers or those who may be on their way to prime status but have suffered a past credit event such as a late payment, collection, short sale, charge-off, foreclosure, bankruptcy, etc. within the last two years) are often good candidates for Non-QM loans.
Borrowers with sizable assets and prime credit may decide on a non-QM loan in order to maintain a positive cash flow rather than just buying the home in cash.
What are the Benefits of a Non-QM Loan?
Because non-QM loans offer more flexible requirements, borrowers can benefit in a number of ways. In addition to serving the needs of self-employed borrowers and or people with non-traditional financial circumstances, they allow alternative income verification methods and multiple fixed and adjustable loan options. Also, second homes and investment properties may be eligible.
A Non-QM loan means the borrower can stay liquid rather than pouring all their cash assets into a real estate purchase, allowing them to diversify their investments. Furthermore, mortgage interest payments with a Non-QM loan can be deducted each year on income taxes. Consult a tax advisor for financial or tax advice.
Interested in learning more? A New American Funding Loan Officer can assess your individual employment, asset and income profile to determine if this product is right for you. For more information, contact us today!