When seeking a mortgage, lenders normally review standard requirements for qualification such as income, credit, and job stability. But where does that leave creditworthy borrowers who are financially ready to buy a house and are unable to qualify due to not having a traditional income, W2, or paystub? For those who do not fit inside the traditional lending box, non-QM loan programs may provide a solution keeping your path to homeownership still within reach.
What is a Non-QM Loan?
A non-QM loan, or non-qualified mortgage, is an alternative financing solution for those who do not meet the traditional lending standards set by the Consumer Financial Protection Bureau (CFPB). A consumer may seek out a non-QM loan if looking to qualify for financing without relying on their personal income or employment, if they have a unique income stream, or if they have considerable assets but lack an established credit history or credit score. Scenarios a non-QM loan may provide a solution for include those who are:
Self-Employed: Generally used by small business owners or independent contractors, the Bank Statement loan program focuses on income verification based on business or personal bank statements versus W2s or paystubs plus you do not need to own 100% of the business to qualify.
A Real Estate Investor: For those interested in buying a short-term or long-term rental property without relying on personal income or employment information to qualify, a Debt Service Coverage Ratio (DSCR) loan may be an option. Instead of a traditional evaluation, lenders analyze the DSCR of a property to determine financing.
Have Substantial Assets: Other times you may have the cash on-hand to buy a property but opt to finance the purchase to keep your liquidity. Enter the Asset Qualifier Mortgage loan program. Instead of evaluating your personal income, employment, or debt-to-income (DTI) ratio for your ability-to-repay, this program evaluates your liquid assets for qualification.
An Asset Qualifier Mortgage can also offer a solution for self-employed individuals, retirees or divorcees with no income, and to “Credit Invisibles”; that is those who may not have an established credit history or credit score.
Non-QM Loans Versus Non-Conforming Loans
While a homebuyer has the option for a non-QM loan, it’s important to note it is not the same as a non-conforming loan. Non-QM loans do not conform to CFPB standards and often feature flexible credit and income requirements. A non-conforming loan, also known as a jumbo loan, is set by the standards of the Federal Housing Finance Agency (FHFA). The most distinguishable feature of a non-conforming loan is the loan limit. Currently, the maximum loan amount for a non-conforming loan is $766,550 in most areas of the U.S.
Non-QM loan programs offer a financing solution for those unable to meet the requirements of standard mortgage financing due to variable income or non-traditional employment. If interested in learning more about non-QM loan programs and eligibility requirements, give our team a call today. We’d be happy to serve as a resource so you can make an informed decision.