Non-QM Loan

A Non-QM loan offers flexible income verification alternatives to the standard methods used by traditional QM loans, making it easier for borrowers to qualify for a mortgage. These loans are not backed by government agencies like FHA or Fannie Mae, providing unique lending options without standard backing.

Self-employed individuals often have irregular income and multiple income sources, making it challenging to secure a traditional mortgage. They may opt for loans based on bank statements rather than tax returns.

Prime borrowers, who typically have excellent credit and may prefer loans with options like interest-only payments or have a higher debt-to-income ratio (DTI), find Non-QM loans appealing.

Near or non-prime borrowers, such as those with limited credit history, recent bankruptcy, or a distressed property sale, are also good candidates for Non-QM loans.

Borrowers with significant assets and strong credit might choose a Non-QM loan to keep their cash flow flexible instead of purchasing a home outright.

Non-QM loans are ideal for homebuyers who don't have traditional income proof required for a Qualified Mortgage, which adheres to strict federal guidelines. These loans use alternative income verification methods to help more people qualify for a mortgage. Features like longer loan terms and interest-only payments can also aid in qualification. Remember, terms vary by lender, so it's important to review your specific agreement carefully.

The exact requirements for a Non-QM loan will depend on the type of Non-QM loan you get. However, some general requirements usually include a minimum credit score of 660, a DTI of 45%-55%, and a max LTV of 80%-90%.

Non-QM loans have different requirements than other loan types because they are not bound by the CFPB requirements. Non-QM loans generally require:

• A credit score of 660 or higher. A lender may accept a lower credit score under certain circumstances.
• A debt-to-income ratio (DTI) of 45%-55%
• A loan-to-value ratio (LTV) of 80%-90%
• Different types of income verification including everything from standard income documents like W-2s to proof of alternative income like 1099s, tax returns, or asset information like your bank statements, stocks, and mutual funds.

Income requirements for Non-QM loans are their main point of flexibility. Some of the most common alternative income verification options include: 

One-Year Tax Return Program

• Requires personal and business tax returns from the past year, including all related schedules.
• Often needs a signed Profit and Loss statement for the business.

12-Month Bank Statement Program

• Accepts personal or business bank statements.
• Requires a Profit and Loss statement for the last 12 months or the previous year, plus year-to-date.

Asset Qualifier Program (For purchasing or refinancing primary or second homes)

• Needs 60 days of account history.
• Allows 100% of vested retirement assets for borrowers over 59 ½ years old and 70% for those under 59 ½.
• Calculates using a 3% rate of return on assets, amortized over seven years.

Each type of Non-QM loan has different requirements, so make sure to talk with your loan officer and find out what options may be available for your needs.

• Perfect for self-employed individuals or those with unique financial situations.
• Accepts alternative methods for verifying income.
• Offers a variety of fixed and adjustable loan options.
• Loan amounts up to $2.5 million and cash-out options up to $500,000.
• Available for second homes and investment properties.
• Helps maintain cash liquidity, allowing you to diversify your investments without tying up all your funds in real estate.
• Potential for annual mortgage interest deductions on your taxes (consult a tax advisor for specific advice).
• Provides a buffer against market downturns, protecting your financial investments.

Who Should Consider a Non-QM Mortgage?

• Self-Employed Borrowers: Ideal for those with intermittent pay and multiple income streams who find it hard to document their income for traditional loans. They often use bank statements instead of tax returns to apply.
• Prime Borrowers: Those with excellent credit and timely payment histories who might need loans with features like interest-only payments or have a higher debt-to-income ratio.
• Near/Non-Prime Borrowers: Individuals rebuilding their credit after issues like late payments, foreclosures, or bankruptcies in the recent past.
• Asset-Rich Borrowers: Those with significant assets and good credit who prefer to maintain cash flow and flexibility rather than purchasing homes outright.

Advantages of Non-QM Loans:

• Tailored for self-employed individuals or those with non-traditional financial situations.
• Flexible income verification methods and a variety of loan options, including fixed and adjustable rates.
• Eligibility extends to second homes and investment properties.
• Allows borrowers to stay liquid, diversifying investments without tying up all funds in real estate.
• Potential for annual mortgage interest tax deductions (consult a tax advisor).

Non-QM Home Loan Options:

• Suitable for rate-and-term refinancing, cash-out refinancing, or purchasing primary or secondary homes.

Interested in Non-QM Loans?

Contact us to find out how a Non-QM loan could be the perfect solution for your home financing needs.