A Non-Qualified Mortgage (Non-QM) is any home loan that doesn't comply with the Consumer Financial Protection Bureau's (CFPB) existing rules on Qualified Mortgages (QM). Usually this type of mortgage loan assists consumers who are capable of repaying a mortgage but for various reasons are unable to obtain a qualified mortgage due to credit or income issues. Some of these reasons may include:
Debt to income - borrowers who have high amounts of revolving debt may still be able to pay a mortgage, but their income and debt ratios are too high.
FICO score issues - sometimes a borrower might experience a short-term financial situation with created a series of late payments and a subsequent drop in their credit score. Even though the situation has been resolved these late payments will remain on their credit report and their score may hinder their ability to qualify for a qualified (standard) mortgage.
Self-Employment - a borrower who has been self-employed for less than 2 years or who is utilizing maximum deductions to make their income look smaller to reduce their tax obligation would also not be able to qualify for a qualified (standard) mortgage.
A Non-QM mortgage doesn't necessarily mean high risk and in many cases these loans require a high FICO score and larger than normal down payment (20% or more). Non-QM mortgage loans offer some enticing alternatives to allow otherwise solid borrowers to obtain a mortgage loan. Some examples of Non-QM mortgage products include:
While standard mortgage loans are amortized over 30 years, a Non-QM loan may extend the amortization to 40 years which means the borrower would be required to pay a lower monthly payment allowing them to qualify for a mortgage.
When a borrower has had a temporary financial setback which resulted in a low FICO score, an interest only loan may help them qualify for a mortgage. Interest only loans are typically balloon mortgages such as a 5/25 or 7/23 loan. Once the borrower has repaired their credit, they may be able to qualify for a qualified (standard) mortgage loan.
Income is one of the main components of mortgage qualifying and this is often a challenge for the self-employed borrower. With a Non-QM loan a borrower may be able to use their bank statements which show regular deposits to verify their income. In some cases, a profit and loss statement may also be required.
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Company NMLS: 2366709
www.nmlsconsumeraccess.org
3001 Polar Lane, #502,
Austin, TX 78613
Phone: 512-299-4965
epaulson@gfmortgages.com
NMLS: 380212
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