A non-QM mortgage can be the unique solution you’re looking for when you want to buy real estate, but don’t fit the typical mold. For self-employed borrowers, individuals who make most of their income from investments, or anyone who wants to qualify without depending on tax documents, a non-QM option like a cash flow investor loan or a bank statement mortgage can be the perfect fit.
On of the many benefits of a non-QM loan is the efficiency of it. In many cases, you’ll be able to close on a home with a non-QM loan far more quickly than you would with a traditional mortgage. Here’s how it works.
What is a Non-QM Mortgage?
A non-QM mortgage (short for Non-Qualified Mortgage) is a type of loan that does not meet the standards set by the Consumer Financial Protection Bureau (CFPB) for a Qualified Mortgage (QM). Traditional, or QM loans, follow strict guidelines to ensure a borrower’s ability to repay the loan, including requirements related to income verification, debt-to-income (DTI) ratio, and credit history. These guidelines are set by the government agencies that insure them.
When you have a non-QM loan, you benefit from a bit more flexibility because the guidelines are not as strict. Non-QM loans are designed for borrowers who don’t fit the traditional mold but are still capable of repaying a loan. They tend to be ideal for:
- Self-employed individuals with fluctuating income or income that is more difficult to show on a tax return.
- Real estate investors using rental income to qualify.
- Foreign nationals who lack a U.S. credit history.
Why is the Non-QM Process Faster?
In addition to the flexibility they offer, a non-QM loan is often the more efficient choice that can get you to your goals more quickly. Because non-QM loans offer more flexibility, the application and approval process is often quicker than for traditional loans.
In large part, this is due to the documentation. One of the biggest reasons non-QM loans are faster is the reduced amount of paperwork required. Traditional lenders will ask for multiple years of tax returns, W-2s and pay stubs, detailed proof of employment, and bank statements for income verification
With a non-QM loan, alternative documentation is acceptable. For example, self-employed borrowers can use bank statements to prove their income instead of submitting complicated tax returns. Real estate investors can qualify based on the property’s rental income rather than their personal income. We don’t need to see nearly as much of your paperwork because you will be qualifying based on a simpler set of data.
The DTI ratio limits are also more flexible. This ratio compares your total monthly debt payments to your gross monthly income. In traditional loans, lenders usually require a DTI ratio of 43% or lower to qualify. However, non-QM loans tend to allow higher DTI ratios, which is usually better for borrowers with significant income but high expenses.
You’ll also find the underwriting process to be faster, because it is simpler. The underwriting process for a traditional mortgage can take several weeks, with meticulous scrutiny of documents and credit history. Non-QM loans, however, often move through underwriting much faster because the focus is on the borrower’s ability to repay rather than adhering to rigid criteria.
While non-QM loans may come with higher interest rates than traditional loans, the benefits of easier qualification and faster approval can far outweigh the costs. When you’re ready to learn more about the financing options available to you, we are here to help. Whether you just want to ask more questions, or you’re ready to apply for a mortgage, contact us to start working toward your goals. We have years of experience successfully connecting our clients to the right funding for their unique needs, and we’re ready to do the same for you.
