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Non-QM loans, or non-qualified mortgages, offer purchase and refinancing options to homeowners who might not meet the standard criteria for lending due to factors like income, employment, or credit history. 

What is a Non-QM Loan?

A Non-QM loan falls outside the strict regulations established by the Consumer Financial Protection Bureau (CFPB). Often, this type of loan suits borrowers with higher debt-to-income ratios, interest-only loan programs, and fluctuating incomes. Offering more lenient underwriting criteria, Non-QM loans open up a broader range of financing options for homeowners.

What is the Difference Between a Qualified vs. Non-Qualified Mortgage?

A Qualified Mortgage (QM) follows the standards outlined by the Consumer Financial Protection Bureau (CFPB), in contrast to a Non-QM loan, which does not. Key distinctions between Qualified and Non-Qualified mortgages are:

  • CFPB (Consumer Financial Protection Bureau) Guidelines Compliance:
    • QM Loans: Comply with the CFPB’s Ability-to-Repay (ATR) rules.
    • Non-QM Loans: Do not meet all the ATR criteria, providing flexibility for unconventional borrowers.
  • Debt-to-Income (DTI) Ratios:
    • QM Loans: Typically require a DTI ratio of 43% or lower.
    • Non-QM Loans: May allow for higher DTI ratios.
  • Income Verification:
    • QM Loans: Demand standard income verification documents, such as W-2s, tax returns, and pay stubs.
    • Non-QM Loans: Offer flexibility by accepting alternative documentation for income verification.
  • Loan Features:
    • QM Loans: Prohibit risky features such as negative amortization, interest-only payments, and terms exceeding 30 years.
    • Non-QM Loans: May include these features, offering a broader range of loan options.
  • Down Payment and Credit History:
    • QM Loans: Often require a minimum down payment and a good credit history.
    • Non-QM Loans: Provide more flexibility with credit history requirements and down payment amounts.
  • Mortgage Insurance:
    • QM Loans: Usually required if the down payment is less than 20%.
    • Non-QM Loans: The requirements for mortgage insurance can vary, and it might not always be necessary.
  • Interest Rates and Fees:
    • QM Loans: Are subject to caps on points and fees charged to the borrower.
    • Non-QM Loans: May carry higher interest rates and fees due to the increased risk taken by lenders.

Who Can Benefit From a Non-Qm Loan?

Non-Qualified Mortgages (Non-QM) offer significant advantages to a wide range of borrowers whose unique financial circumstances do not align with traditional lending standards. These loans are especially beneficial for:

  • Self-Employed Individuals: Entrepreneurs and freelancers may struggle to produce the conventional income verification documents that Qualified Mortgages (QM) require. Non-QM loans allow for alternative forms of documentation, such as bank statements, to demonstrate income stability and the ability to repay the loan.

  • Real Estate Investors: Property investors who might surpass the debt-to-income (DTI) ratio limits set by QM guidelines can find solace in Non-QM loans, which often provide more flexible DTI calculations, enabling further property acquisitions.

  • High Net Worth Borrowers: Those with substantial assets but fluctuating income streams may not satisfy traditional income verification standards. Non-QM lenders may consider asset depletion loans, utilizing the borrower’s assets as proof of repayment capability.

  • Individuals with Non-Traditional Income: Workers in the gig economy, contractors, or those with variable incomes might discover that Non-QM loans better accommodate their financial situation due to the more flexible approach to income verification.

  • Borrowers with Recent Credit Events: Individuals recovering from financial setbacks like bankruptcy or foreclosure might be ineligible for QM loans. Non-QM loans offer a pathway to homeownership with more relaxed credit history criteria.

  • Foreign Nationals: Non-resident individuals looking to buy property in the U.S. but lacking a U.S. credit history can benefit from Non-QM loans, which provide alternative ways to prove creditworthiness.

  • Interest-Only Loan Seekers: Borrowers preferring lower monthly payments via interest-only loans, not permitted under QM regulations, may find appropriate solutions within the Non-QM loan sector.

Non-QM loans open doors to homeownership and real estate investment for those who are financially responsible but do not conform to conventional lending criteria. However, it is crucial for borrowers to fully comprehend the terms, risks, and potentially higher costs linked to Non-QM loans and to thoughtfully assess their long-term financial plans.

Our Non-QM Loan Programs?

Atlantic Mortgage & Finance Corporation provides a diverse array of Non-QM purchase and mortgage refinance options designed to assist borrowers from various backgrounds in reaching their mortgage financing objectives. Among our offerings for Non-QM purchase and refinancing, you’ll find::

  • Bank Statement Loans: Targeted at self-employed individuals or business owners, allowing them to use 12 to 24 months of bank statements for income verification instead of traditional tax documents.
  • Asset-Based Loans: Suitable for those with substantial assets but irregular income, where lenders consider the borrower’s assets as evidence of the ability to repay the loan.
  • Interest-Only Loans: Offers lower initial monthly payments by allowing borrowers to pay only the interest on the loan for a set period.
  • DSCR (Debt Service Coverage Ratio) Loans: Designed for real estate investors, focusing on the property’s cash flow or rental income potential rather than the borrower’s personal income.
  • Foreign National Loans: Aimed at non-U.S. citizens purchasing property in the United States, using alternative criteria for assessing creditworthiness.
  • Jumbo Loans with Non-QM Features: Larger loan amounts that exceed conforming loan limits, with Non-QM flexibility for borrowers outside traditional lending criteria.
  • Non-Prime/Alt-A Loans: For borrowers with lower credit scores or recent significant credit events, offering a pathway to homeownership with lenient credit requirements.
  • Recent Credit Event Loans: Targeted at those who have undergone significant credit events but have since recovered, allowing for homeownership sooner than traditional loans would.
  • No-Doc/Limited Doc Loans: Require minimal documentation for income and assets, catering to a specific borrower profile with less common availability post-financial crisis.

Non-QM loans can come with higher interest rates and fees due to the increased risk to lenders. It’s crucial for borrowers to evaluate their financial situation thoroughly and possibly consult a mortgage professional to identify the most suitable Non-QM loan program for their needs. Additionally, comparing offerings from different lenders is advisable to ensure the best terms.

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