Are you financially ready to take on a mortgage but struggling to qualify? At The Mortgage Minds Group, we want to provide you with tailored mortgage solutions so that nothing stops you from getting your dream home. Today we will discuss non-qualifying mortgage loans—what a non-QM loan is, the different types of non-QM programs, and what it all can mean for you.
What is a Non-QM Loan?
Non-qualifying mortgage loans cater to borrowers whose financial circumstances do not meet the standard qualifications of a conventional mortgage.
Such situations may include an irregular or unconventional source of income, a significant credit setback, or excessive debt. Some lenders offer non-QM loans to contractors, self-employed, retirees, or those who can't provide the income documentation required for a qualified mortgage.
If this sounds like you, that's good news—two types of non-QM loans might suit your circumstances and allow you to purchase your dream home. Let's explore the details now.
Bank Statement Program
A bank statement program is a non-QM home loan that determines a borrower's income by analyzing their bank statements. This loan type is an alternative documentation method that replaces using tax returns and W-2s during the qualification process. It is generally available to all self-employed, 1099 borrowers, and ITIN holders.
Twelve months of consecutive business or personal bank statements are required to apply. Before you submit that documentation, you must also have completed a BSI questionnaire. In addition, you must provide proof of business ownership, such as an LLC operating agreement or an EIN confirmation letter.
Bank Statement Program Details and Benefits:
Minimum 600 credit score
Loans up to one million dollars
85% maximum loan-to-value ratio (80% in certain states)
Gift funds allowed
Cash-out refinance
Accepted properties: SFOO, 2nd home, multi-family, mobile homes with land, vacant land condo, townhome
Profit and Loss Program
The profit and loss program uses business statements to provide a clear overview of a company's earnings, expenditures, and overall profit during a specific period. This program is our most popular income qualification method. As with the bank statement program, it is generally available to all self-employed, 1099 borrowers, and ITIN holders. A CPA or PTIN must prepare your profit and loss documentation (P&L) for the past 12 months. You must also provide proof of business operations that meet or exceed a twelve-month requirement. 、
Benefits and Details of the Profit and Loss Program:
Minimum 600 credit score accepted
Loans up to one million dollars
80% maximum loan-to-value ratio (LTV)
Cash-out refinance
Gift funds allowed
Accepted properties: SFOO, 2nd home, multi-family, mobile homes with land, vacant land condo, townhome
Important Non-QM Loan Considerations
Non-QM loans, by definition, don't meet the requirements set by the CFPB, or Consumer Financial Protection Bureau, that ensure a borrower can repay their loan. (These regulations are put in place to protect borrowers from taking out a loan they are unlikely to be able to repay.) As a result, non-QM loans are riskier for lenders, meaning terms are not as favorable for the borrower. Loan agreements vary depending on the lender and are often set up with conditions such as interest-only payments, negative amortization, and balloon payments. When considering a non-qualified mortgage loan, borrowers should read their terms carefully and ensure they can afford potentially large payments later. If borrowers experience financial difficulty down the road and cannot make a substantial final payment(s), they risk losing their property.
Learn More About Mortgage Loans
At The Mortgage Minds Group, we want to help you educate yourself on the mortgage process. You can rely on our experience to make your home-buying process simple.
If you are interested, apply for a loan today—don't hesitate to reach out if you have any questions.
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