Non-QM mortgages create flexibility for borrowers, giving many buyers the chance to purchase a property that might otherwise be unavailable. With so many questions for 2022, it appears that non-QM loans could be the best choice for numerous buyers.
We are Leading Non-QM Lending in 2022
Non-QM lending can help many people qualify for a home loan.
What is Non-QM Lending?
To understand non-QM loans, it helps to take a step back and examine qualified mortgage loans, also known as QM loans. The term “qualified mortgage” is a fairly recent term. It was first coined, as far as we can tell, after the financial crisis that started in 2008, the crisis that has become known as the “Great Recession.”
Qualified mortgages are a category of loans that have certain features that make them more stable and less risky to lenders. Essentially, QM loans are more likely to be repaid because they come with a variety of requirements. To secure a QM loan, a borrower needs to go through a process that verifies their ability to repay. This is often called the “ability-to-repay” rule. When a lender makes a qualified mortgage loan, they enjoy certain protections and benefits. It’s in the lender’s best interest, therefore, to issue QM loans whenever possible.
QM loans are not allowed to have certain features. Interest-only periods, negative amortization (when the borrower owes more than the home’s value), balloon payments, and other features are not allowed in qualified mortgages. The terms cannot be longer than 30 years, and there is a limit on how much of your income can go towards debts. (This last feature is the debt-to-income ratio.)
Non-QM loans are simply outside of these requirements. They are less restrictive in what they can allow, and generally offer more flexible terms. These loans allow you to qualify on terms that may not be allowed with qualified lending, opening new real estate opportunities for many different borrowers.
Benefits of Non-QM Loans
There are numerous benefits to using non-QM lending in 2022. They can make your offer more competitive, and can help you qualify for a variety of homes and properties that may not be available with other options. These loans, above all, offer greater underwriting flexibility.
With non-QM lending, you can reach loan approval with no income calculations or no job-history requirements, depending on the specific loan you select. This can be an important option for borrowers who are self-employed or investors who have a unique, inconsistent income.
These loans can also help you qualify for larger loans with a smaller downpayment. The details will depend on which loan product you are using, but there are options available that allow for roughly a 10% downpayment on a jumbo loan for borrowers with a FICO score of 740 or higher. This is just one example of how non-QM lending in 2022 could be extremely beneficial.
In some cases, you may be able to qualify with a small reserve requirement. In certain situations, you could qualify with as little as 6 months in reserve requirements. This could make a loan far more accessible for people with less money in savings.
What Non-QM Loans are Available in 2022?
There are many types of non-QM loans that are available in 2022 and beyond. This is not a comprehensive list, but it should give you an idea of some options that are available if you need non-QM lending for your next purchase.
An interest-only loan is beneficial because it starts with an introductory period that has low monthly payments. For the first five to ten years, depending on how the loan is structured, you’ll only pay interest on the loan. While you won’t build equity, you will have the chance to enjoy a lower monthly payment, allowing you to build savings, invest, or pay for revisions to the property. Once the initial period is up, the payment will increase and you’ll begin to pay off the balance on the loan.
These loan don’t use typical income documentations to qualify the loan. Instead, they use your assets to reach loan approval. A variety of assets can be used in your application, and many will use stocks, mutual funds, and retirement accounts as qualifying income. Many retirees, for example, use their retirement accounts as assets on the loan, which can significantly increase the chances of approval.
This type of loan is excellent if you have a high net worth but a low or inconsistent income.
Jumbo loans are outside of the conforming limit set by the Federal Housing Finance Agency. These limits are set on a count-by-county bases, but the limit for most areas in the United States is currently $647,200. This limit is increased in high-cost areas, which can be found on the FHFA’s Conforming Loan Limits map.
If you need financing above this amount, you could use a non-QM loan known as a “jumbo loan.” These loans offer loan amounts upwards of $3 million.
If you are a self-employed professional who files your taxes using a 1099 form, you can use this information to qualify for a mortgage. A 1099 loan is a type of non-QM loan that can help you purchase a wonderful home without the documents that are typically used on an application.
Bank Statement Loans
Instead of using traditional income documents such as paystubs and tax returns, a bank statement loan help you qualify for financing with only your current bank information. Bank statements provide excellent context for lenders, as they show your income as well as your outgoing expenses. This non-QM loan could help you qualify if you are an investor or a self-employed individual.
Loans for an Accessory Dwelling Unit (ADU)
QM loans are generally for purchasing your home. They are not for improving your property or creating an income resource. With non-QM loans, you can secure financing for an accessory dwelling unit, which can then be used to create a rental income or support the housing of a loved one.
Work with a Team that is Leading Non-QM Lending in 2022
If you want to enjoy the benefits of a non-QM loan, contact our team today. We have the resources and experience to find the right loan for your next purchase!