Non-QM loans requirements and eligibility in 2023
By: Marcos Zambrano
Updated on: November 30, 2023
What are Non-QM loans?
Non-QM loans are mortgages that don’t meet the qualified mortgage (QM) standards set by the Consumer Financial Protection Bureau (CFPB). These loans may be more suitable for borrowers who have difficulty qualifying for traditional QM loans due to their credit score, income, debt-to-income ratio, or other factors. Generally speaking, non-QM loans allow borrowers to provide alternative forms of documentation for income that other government-backed programs do not allow.
Whether you’re a first-time home buyer looking for more lenient credit requirements, a real estate investor seeking a loan that takes into account your total asset pool, or a retiree with significant savings but a reduced monthly income, Non-QM Loans could open the doors to opportunities previously unattainable.
At Andes Mortgage LLC, we specialize in Non-QM loans. Our team of experienced loan experts are ready to help you find the right Non-QM loan option for your unique situation. We provide our clients with personalized service and a variety of non-QM loan options, tailored to meet their individual needs.
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The Power Of Non-QM Loans: Where Flexibility Meets Opportunity
Traditional loans often fall short when dealing with unconventional financial situations. That’s where Non-QM Loans come into play, offering a unique set of benefits tailored to your individual needs:
Flexibility: Non-QM Loans are not one-size-fits-all. They offer a range of products tailored to fit unique borrower situations like self-employment, varying income sources, or complex financial portfolios.
Inclusivity: For those with unconventional income sources or credit histories, Non-QM Loans provide an inclusive alternative to traditional loan options.
Greater Borrowing Potential: Non-QM Loans may allow for larger loan amounts compared to conventional loans. Ideal for high-value property investments or real estate ambitions that demand a larger financial backing.
Interest-Only Options: Certain Non-QM Loan products offer interest-only payment options, allowing for lower monthly payments and increased cash flow.
Discover A Variety Of Non-QM Loan Programs Tailored To Your Unique Financial Picture
Non-QM Loans are not a one-size-fits-all solution. These specialized loan programs cater to diverse financial situations.
Explore the different types we offer and find the one that suits your needs:
1099 Loans: Designed for independent contractors or freelancers, 1099 Loans use your average income over the past 24 months to determine your ability to repay the loan. This allows for a broader and more realistic picture of your earning capacity.
Bank Statement Loans: This type of loan is perfect for self-employed borrowers. Rather than relying on W-2 forms, bank statement loans use deposits shown in your bank statements to determine your income, enabling a more accurate reflection of your cash flow.
P&L Loans: Profit and Loss (P&L) Loans are ideal for business owners, considering the net profit from your business as stated in your Profit and Loss statement. This loan type provides a flexible way to showcase your income.
DSCR Loans: Debt Service Coverage Ratio (DSCR) Loans evaluate your ability to service your mortgage based on the rental income of the property. Perfect for real estate investors seeking to expand their portfolio without traditional income verification.
Asset Depletion Loans: Asset Depletion Loans consider your liquid assets and investments, not just your income, to determine loan eligibility. This is great for retirees or high-net-worth individuals with significant asset holdings but lower regular income.
Foreign National Loan: Catering to non-US citizens or residents who seek to invest in US real estate, Foreign National Loans allow property acquisition without traditional US-based income or credit history.
Non-QM Jumbo Loans: For larger loan amounts, and borrowers who may have had a derogatory credit event such as foreclosures or bankruptcies, Non-QM Jumbo Loans can be an ideal solution.
Important Considerations For Non-QM Loans
Navigating the world of Non-QM Loans requires understanding a few key elements. Here’s what you should know:
Minimum Down Payment: While Non-QM Loans can offer more flexibility, they often require a higher down payment compared to traditional loans. Generally, a minimum of 10-20% down payment is required, but this can vary depending on the loan type and your financial situation.
Credit Scores: Credit score requirements for Non-QM Loans are more lenient, offering opportunities for those with lower credit scores. However, a better credit score may provide more favorable terms.
Income Verification: Non-QM Loans are designed for unconventional income, but you’ll still need to prove your ability to repay the loan. This may involve 1099 forms, bank statements, P&L statements, or other income or asset verification.
Remember, Non-QM Loans open new doors but understanding the requirements ensures you’re well-prepared for this financial journey.
Comparing Non-QM loans And Traditional Mortgages
When exploring your mortgage options, it’s essential to understand the differences between Non-QM Loans and the normal, government-backed loans.
Non-QM Loans vs FHA loans
Federal Housing Administration (FHA) Loans are designed to help low-to-moderate-income borrowers.
Some highlights of FHA loans include:
- Down Payment: FHA loans require a down payment as low as 3.5%, compared to a minimum of 10-25% for Non-QM loans.
- Credit Requirements: FHA loans typically have more lenient credit score requirements, with loans available to borrowers with scores as low as 520.
- Mortgage Insurance: FHA loans require both upfront and annual mortgage insurance premiums, regardless of the down payment amount. In contrast, Non-QM loans do not require mortgage insurance, even if your down payment is less than 20%.
Non-QM loans vs VA loans
Veterans Affairs (VA) Loans offer significant benefits for eligible military service members, veterans, and their families.
- Down Payment: VA loans don’t require a down payment, whereas Non-QM Loans typically require at least 10-25% down payment.
- Credit Requirements: VA loans tend to have more flexible credit requirements than Non-QM Loans. In fact, the VA does not have a minimum credit score guideline but rather, the lenders who offer VA loans may set a minimum themselves according to their risk tolerance. Some lenders may offer VA loans with credit scores as low as 500.
- Mortgage Insurance: VA loans do not require mortgage insurance, regardless of the down payment amount.
Frequently asked questions about Non-QM loans
Are Non-QM Loans more expensive than traditional loans?
Generally speaking, Non-QM Loans may have higher interest rates compared to traditional loans. However, the overall cost of a loan will depend on several factors including your credit score, financial situation, and loan terms.
How long do I need to wait for a Non-QM Loan?
Non-QM Loans can be approved quickly – in as little as two weeks. The time to approval may vary depending on the lender and your individual financial situation.
How much money do I need for a down payment on a Non-QM Loan?
Generally, 10-20% down is required for Non-QM Loans, although this may vary depending on the program and your financial situation.
Are Non-QM Loans considered Hard Money Loans?
No. Non-QM Loans are specialized loan products that offer an alternative to traditional loans. While they may have some similarities, Hard Money Loans and Non-QM Loans are not the same type of product.
Is PMI Required on Non-QM Loans?
No, Private Mortgage Insurance (PMI) is not required on Non-QM Loans even if the down payment is less than 20%.
Are there any pre-payment penalties on Non-QM loans?
Yes, there may be a pre-payment penalty on investment, DSCR loans.