Non-QM Loans Versus Traditional Conforming Mortgage Comparison

We will answer one of the most frequently asked questions of what are non-QM loans and the differences between non-QM versus traditional conforming mortgages. There was a time when most mortgage borrowers could not qualify for a home loan because of stringent lending requirements on conventional and government loan programs. So, they chose bank statement mortgage programs and non-QM loans. But, after the mortgage and credit meltdown of 2008, non-QM loans were shut down. The good news for mortgage borrowers is that the non-QM loans and bank statement mortgages are now back.

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Mortgage Industry Has Changed

Mortgage Industry Has Changed
After the financial, credit, and real estate meltdown of 2008, new mortgage regulations and rules were implemented. Congress created the SAFE ACT where all mortgage loan originators are required to pass through state and federal testing, state and federal investigations. The NMLS (Nationwide Mortgage Licensing System) was also launched in order to centralize loan officers and mortgage companies in the country. Never has any industry in the United States gone through such changes as those experienced by the mortgage industry.

The End Of No-Doc Mortgage After The 2008 Financial Crisis

Many mortgage lenders like Countrywide Loans went out of business. In 2010, the Dodd-Frank Mortgage act was drafted. Mortgage rules were created and exercised upon mortgage loan originators. Every mortgage loan originator is required to pass through credit checks where they must explain derogatory items on their credit report including foreclosures, collection accounts, and bankruptcies. If mortgage loan originators have bad credit, mortgage regulators can deny them their license.

Understanding How Qualified Mortgages Work

Qualified mortgage provides protection to lenders from liability from borrowers when they originate QM loans. In a qualified mortgage, the mortgage lender qualifies the ability of a borrower to successfully repay their loan. QM mortgage requires the lender to qualify the borrower’s liabilities, income, and monthly debt payments. Qualified mortgages also require mortgage lenders to not charge mortgage borrowers more than 3 percent in points and total fees.

Qualified Mortgage Rules And Regulations

Qualified mortgage requires mortgage lenders to refrain from issuing overpriced or riskier mortgage loans. For example, QM mortgage mandates that mortgage lenders don’t issue loan programs that have balloon payments, pre-payment penalties, extended interest-only loans, and negative amortization loans. The Safe Harbor Act offers protection to mortgage lenders against borrowers. Lenders are protected by a qualified mortgage against mortgage borrowers who claim that they are capable of making their loan payments.

Qualified Mortgage Rules To Protect Public Customers

The very reason for creating new qualified mortgage guidelines and rules was to protect mortgage lenders and borrowers against risky mortgages that caused the real estate meltdown in 2008. Mortgage lenders who follow the rules of qualified mortgage can package and resell their loans in the secondary market to Freddie Mac and Fannie Mae to fund more loans.

Qualified Mortgages Minimize Mortgage Loan From Default

Qualified mortgage plays an important role in originating and funding loans that are risky. Also, a qualified mortgage minimizes the chance of a mortgage going bad or turning into foreclosure. The United States cannot afford another mortgage and real estate meltdown; therefore, a qualified mortgage is here to ensure that such an incident does not happen again.
But, you don’t have to worry as there are non-qualified mortgage loans available that have lenient requirements and you can qualify for them more easily.

A Second Chance for Home Buyers With Non-QM Loans

Homebuyers or owners who went through the financial crisis of the 2008 real estate meltdown and who filed bankruptcy or went throug
h foreclosure now get another chance to become homeowners. Mortgage lenders understand that the real estate collapse of 2008 badly affected the American people and many folks had their credit ruined. After 2008’s real estate collapse, foreclosures and bankruptcy rates in the country increased and hit a record high.

Mortgage Lending Prior To The 2008 Real Estate Meltdown

Before 2008, there weren’t many people who had a foreclosure or bankruptcy. Now there are tens of thousands out there who have gone through a foreclosure, bankruptcy, short sale, or deed in lieu of foreclosure. Freddie Mac, Fannie Mae, VA, HUD all fully understand the situation of home buyers and know that they have suffered from financial issues. Therefore, they have implemented mortgage guidelines with non-qualified mortgage loans that can make it easy for those who have gone through bankruptcy or foreclosure to qualify for a loan.

Non-QM Loans For Bad Credit

Non-QM Loans For Bad Credit
All the loans that don’t fall into the QM loan category are classified as non-qualified mortgage loans or non-QM loans. Some people think that non-qualified mortgages are riskier, but that is not the case. Non-QM loans are just different than qualified mortgages because their lending requirements are not as tough.

Non-QM Mortgage Rates 

The fees and mortgage rates for non-qualified mortgage lenders are slightly higher than qualified mortgage lenders. This is because the protection that qualified mortgage loans offer is not available to non-qualified mortgage lenders. Also, because non-qualified lenders cannot sell their loans to Freddie Mac and Fannie Mae in the open secondary market and they must be sold to other private investors.

Non-Qualified Mortgage Loan Requirements

If you experience bankruptcy and foreclosure, then you will have to wait for a certain period to qualify for a mortgage via a qualified mortgage loan. There is a minimum waiting period requirement after bankruptcy, short sale, and foreclosure for a qualified mortgage loan, but that is not the case with a non-qualified mortgage loan.

Non-QM Loans One Day Out Of Bankruptcy And Foreclosure

If you are unable to meet the minimum waiting period requirement after bankruptcy, short sale, and foreclosure, you cannot qualify with a qualified mortgage loan, but you can qualify with a non-qualified mortgage loan. For non-qualified mortgage loans, there is no minimum waiting period after a foreclosure or bankruptcy. Non-qualified mortgage loans can help home buyers qualify for a mortgage even after they suffer bankruptcy or foreclosure.

What Are Non-QM Loans For Bad Credit

With non-qualified mortgage loans; no credit, bad credit, foreclosure, bankruptcy, deed in lieu of foreclosure, history of bad payments, and outstanding collection accounts aren’t an issue to qualify for a home loan. One important thing that is required with a non-QM loan is the timely payment history of the last 12 months. Lenders will need to see this in order to qualify you for a loan.

Mortgage Loan For Bad Credit

Charge off accounts and old collections with credit balances don’t have to be paid off by mortgage borrowers. Medical collections are not included in debt-to-income ratio calculations. Medical collections are treated differently by mortgage lenders. As long as you have documented income and IRS can verify it, you can again become a homeowner via a non-qualified mortgage loan.

Qualified Mortgage Rules with Conventional and FHA Loans

For an FHA loan, a waiting period of three years is required by the FHA after the date of foreclosure and deed in lieu of foreclosure and there is also a three-year waiting period after the finalized date of a short sale.

FHA Loan Requirements After Chapter 7 Bankruptcy

After discharge from Chapter 7 Bankruptcy, borrowers must wait for a period of 2 years in order to qualify for VA home loans or FHA home loans. After discharge from Chapter 7 Bankruptcy, borrowers must wait for 4 years in order to qualify for conventional loans like Freddie Mac and Fannie Mae. U.S Department of Veteran Affairs (VA) also requires a waiting period of two years after a deed in lieu of foreclosure, foreclosure, and short sale in order for mortgage borrowers to qualify for a VA home loan.

Fannie Mae and Freddie Mac Conventional Loan Requirements After Foreclosure

Conventional Loan Guidelines On Debt-To-Income Ratio
A minimum waiting period of 4 years is required by Freddie Mac and Fannie Mae from the date of short sale or date of deed in lieu of foreclosure to qualify for conventional loans. In order to qualify for conventional loans, borrowers who have had a foreclosure must wait for a period of seven years from the date of foreclosure.

Mortgage Approval With No Waiting Period Requirements After Bankruptcy And Foreclosure

Many homebuyers in America have recovered from foreclosures and bankruptcies and now their financial situation is stable. But, they are still unable to qualify for a home loan. The reason: waiting period requirements that come with a qualified mortgage. The great news for these people is that they can qualify for an FHA loan, conventional loans, and VA home loans with non-QM loans as there is no waiting period with non-qualified mortgage loans after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale.

Non-QM Mortgage Lenders

In order to qualify for a mortgage with a non-QM loan, each lender has its own lending requirements. Non-QM mortgage rates depend on the borrower’s credit scores, down payment, the longevity of the bankruptcy discharge and/or housing event, and other risk factors by the lender. Typical down payment requirements on non-QM loans are 20% to 30%.  Loan Consultants has wholesale down payment lenders that allow credit scores down to 500 FICO. The debt to income ratio is 43 percent but it can go up to 50 percent. If you fail to meet these minimum requirements of non-QM loans, you cannot qualify for a mortgage after foreclosure or bankruptcy.

Non-Qualified Mortgage Loans for Investment Properties

Non-qualified mortgage loans aren’t just for owner-occupied residential property. If you cannot qualify for a mortgage for investment property with a qualified mortgage loan, then you have the option to qualify with non-qualified mortgage loans. There are mortgage lenders out there who offer bank statement loans, no tax return loans, and asset-based loans through non-qualified mortgage loans and you can use these programs for investment property.

Bank Statement Mortgage Loans

After the real estate crisis of 2008, state income loans and no doc loan became extinct which caused self-employed borrowers several problems and made it difficult for them to qualify for a mortgage. But, self-employed borrowers don’t have to worry anymore as the bank statement loans are back to help them qualify for a mortgage. There are four options available in bank statement mortgage programs.

24 Month Bank Statement Mortgage

With the 24-month bank statement mortgage program, borrowers are required to provide bank statements (business or personal) of the most recent last 24 months.

12 Month Bank Statement Mortgage

For 12-month bank statement mortgage programs, self-employed borrowers must provide their personal bank statement of the most recent 12 months that show deposits from work. Business account statements can also be used, but borrowers must provide business account statements for the last 24 months.

1 or 6-Month Program

In a one or six-month bank statement program, only personal bank statements can be used. The credit score of the borrower should be 720 or more. The interest rate is also higher with one and six-month bank statement programs because the self-employed is providing less documentation.

Minimum Credit Score Requirement

For a bank statement mortgage, 680 or higher credit score is required. Mortgage lenders will accept credit scores between 620 and 679 but at a higher interest rate and lower loan-to-value ratio (LTV).

Non-Qualified Mortgages Are Not Going Anywhere

Non-Qualified Mortgages Are Not Going Anywhere
If a qualified mortgage makes it hard for you to qualify for loans, then you should try non-qualified mortgages. Non-qualified mortgages have made it easy for homebuyers to qualify for a loan and are becoming more and more popular. These mortgages are the best option for those people who went through a housing event like bankruptcy, foreclosure, deed in lieu of foreclosure, or short sales as there is no waiting period with a non-QM loan after a housing event. Borrowers can qualify for a home loan via non-QM mortgage right after they get out of foreclosure.

Down Payment Versus Credit Scores On Non-QM Mortgages

With a non-QM mortgage, a down payment of 20 to 30 percent is required depending on the credit score of the borrower. If the credit score is high, less down payment is required, and if it is low, then more down payment is required. For self-employed borrowers, bank statement mortgages are now available.

No-Income Documentation Mortgage Options

Self-employed borrowers are mostly unable to qualify for conventional loans because tax returns are required for these mortgages and since self-employed borrowers write off many expenses in their returns, their income isn’t sufficient to qualify them for a mortgage. With bank statement mortgages, self-employed borrowers can qualify for a mortgage by providing their bank statements. Loan Consultants has no-doc mortgages for primary homes. Requires a 20% down payment with at least a 640 credit score requirement.

Updated Non-QM and Alternative Mortgage Loan Programs for 2022

2021 is a year where new Mortgage Financing Programs were launched by many lenders. The 2008 sub-prime crash abruptly ended bank statement mortgage loans for self-employed borrowers and others creating mortgage financing programs. Bank Statement Loans are now back and so are NON-QM Loans. 90% LTV Jumbo Loans With No Mortgage Insurance. Qualifying for a mortgage with late payments in the past 12 months.

Types Of Mortgage Financing Programs On NON-QM Loans

There are many mortgage financing programs available today such as the following:
Non-QM Loans:

  • No-doc loans
  • Asset depletion mortgages
  • P and L stated income
  • Rental income only investment mortgages
  • No waiting period after bankruptcy and/or foreclosure
  • Qualify for a mortgage with late payments in the past 12 months with Non-QM Loans
  • Bank Statement Mortgage Loans For Self Employed Borrowers
  • Condotel Financing
  • Non-Warrantable Condominium Loans
  • Bridge Financing for exiting properties with equity for homeowners who need the down payment on a new home purchase
  • No more contingency purchase offers are needed due to our bridge loan program
  • Special Financing for doctors and members of  healthcare that is unsecured financing
  • Fix and Flip Loans for real estate investors
  • Short Term Hard Money Loans for real estate investors
  • Commercial Loans

Other alternative and non-traditional mortgage loan programs.

NON-QM Loans

NON-QM Loans are alternative mortgage financing programs for homebuyers who do not qualify for traditional mortgages. They benefit borrowers who have not quite met the mandatory waiting period requirements after bankruptcy and/or foreclosure. Or self-employed borrowers with substantial unreimbursed expenses on their tax returns.
Non-QM Loans mortgage qualification requirements are the following:

  • 20% to 30% down payment on home purchase or 80% Loan To Value on refinances
  • 10% down payment home purchase loan program available with 680 credit scores and higher
  • No waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • No pre-payment penalty
  • Great mortgage program to be used as a short term financing tool
  • Mortgage rates depend on down payment and credit scores
  • Debt to Income Ratio up to 50%
  • Minimum credit score requirements of 500 FICO

Bank Statement Mortgage Loan Programs

Bank Statement Mortgage Loan Programs is a great financing tool for self-employed borrowers. No tax returns are required. Income is derived by 24 months bank statement deposits averages. Can use personal or business bank statements. 100% of deposits are averaged on personal bank statements. 50% of deposits averaged on business bank statements.

Special Jumbo Mortgage Financing Programs

There are special Jumbo Mortgage Financing Programs, especially for self-employed borrowers. Non-QM Jumbo Loans down to 600 credit scores. Bank Statement Jumbo Loans for self-employed borrowers.

Foreign National Mortgage Financing Programs

Foreign Nationals who currently are in the United States on a work visa and working for a U.S. Company can now qualify for Foreign-National Mortgage Financing Programs with no credit scores. They need to be employed by a U.S Company or a subsidiary of a U.S. Company.
Here is the Foreign National Loan Program:

  • 80% Loan to value up to 1.5 Million on primary single-family residences
  • 80%  Loan to value up to 1.5 Million Loan Amounts for Borrowers who have No US Credit or Limited Tradelines ( Expat Program designed for those living/working for a US Company )
  • 80% Loan to value up to  $625,500 OR 75%  loan to value up to 1.5 Million on vacation homes, Second Homes, Non-Warrantable Condominiums, and Co-ops
  • 75% Loan to value up to 2.0 Million on Condotel Financing
  • 65% LTV up to 2.5 Million for Canadian Borrowers looking to purchase a Vacation Homes  and Second Homes in the United States
  • 60% Loan to value up to 3.0 Million on Investment Properties / Foreign Nationals consider on a case by case basis.
  • Up to 1.0 Million Cash In Hand

85% & 90% Jumbo Mortgage Financing Programs

For those high-end home buyers who are looking for Jumbo mortgage loan programs with minimal down payments, there are 85% and 90% Loan To Value Jumbo mortgage loan programs with no mortgage insurance. The maximum loan amount for the  90% LTV Jumbo mortgage loan limit has a  maximum loan amount of $3,000,000. The credit score required is 660 FICO for 90% LTV Jumbo loans with debt to income ratio cap up to 50%. One week underwriting and closing in 30 days or less.

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