Reasons a Non-QM Mortgage Might be Better Than a Traditional One – Not every person hoping to purchase a home will be able to qualify for a traditional conventional 30-year fixed-rate mortgage. This can be due to several different reasons that do not meet up to the qualifying standards of these most commonly issued mortgages.
It can be disheartening to find out that a lender is not willing to loan you money through conventional means to purchase a home but there are other mortgage products available to help you finance a real estate purchase.
Non-QM mortgages help applicants with unique financial situations to qualify for a different type of mortgage loan.
A non-QM mortgage is simply a term for any mortgage offered by a lender that does not meet the set of requirements put out by Fannie Mae or Freddie Mac to become a federally backed mortgage.
Since the big recession and housing financial crisis brought on in 2008, the Frank-Dodd Act was established. Through this act, there’s an established set of criteria that lenders need to meet to fund a mortgage through conventional federally backed means. If a loan is given outside of these parameters, it is called a non-qualified or non-QM mortgage.
Scenarios When a Non-QM Mortgage is a Better Option for a Borrower
Self-Employed or Non-Traditional Income
Many times, self-employed applicants and company owners do not have pay stubs or a W-2 to verify income. When applying for a loan through the common traditional avenues, lenders don’t look at true income, instead, they see a lot of write-offs on a tax return leading them to think the applicant is unable to pay back the loan.
Non-QM mortgages look at the applicant’s financial history through other means to help determine their ability to repay the loan.
Applicants with Low Credit Scores
To qualify for a traditional mortgage most lenders like to see a FICO credit score of at least 620. But this does not look at the details of why a person may have come by a lower score. Sometimes life can hand someone an unexpected emergency beyond their control that lands them in a financial hard spot.
An applicant with a lower credit score may have a chance to qualify for a non-QM mortgage with a down payment of 10% or more.
Property is Not Occupied by the Applicant
When you invest in real estate, tax write-offs you use to decrease your tax responsibility could make it look like you do not generate enough income to pay back a loan or continue to take care of the property.
Non-QM mortgages are often used to purchase real estate investment properties with the use of a 1099, bank statements, or proof of a positive cash income from rent collected on the property.
High-Value Property Purchase
Traditional conventional loans have maximum lending limits. If a home is priced above the limit a borrower will need to find a non-QM loan known as a Jumbo Loan. A non-QM loan allows a lender to make the call on how much money they are willing to lend out to an applicant based on their income and the amount of money they have within their accounts. Most often lenders are hoping to see that the applicant has about 6 months of monthly payments available in their accounts.
For more information on non-QM mortgage options in Mission Viejo and California, even if you have been denied a conventional loan, please contact me at any time.
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