What is a Non-QM Mortgage Product? 

Non QM Mortgage Overview. 

It’s important to note that the specific characteristics and features of Non QM mortgage products can vary from one lender to another.

Non QM loans can provide valuable options for borrowers who don’t fit within traditional mortgage guidelines but may come with higher costs and risks.

Borrowers considering Non QM loans should carefully review the terms and conditions, as well as consult with a mortgage professional, to fully understand the terms and risks associated with these types of loans.

How is a Non QM Mortgage Defined? 

NON QM: A Non-Qualified Mortgage (Non QM) is a type of mortgage loan that does not meet the qualified mortgage (QM) criteria established by the Consumer Financial Protection Bureau (CFPB) under the Ability-to-Repay (ATR) rule. Unlike QM loans, which have certain borrower protections and stricter underwriting standards, Non QM loans are considered non-traditional, and are structured to meet the needs of borrowers who may not qualify for standard QM loans.

Non Qm Mortgage: What are they used for?

Jumbo Loans: Non-QM loans can be used for larger loan amounts that exceed the conforming loan limits set by government-sponsored entities like Fannie Mae and Freddie Mac.

Non-Traditional Property Types: Non-QM mortgages may be used for non-traditional property types, such as investment properties, vacation homes, and certain types of mixed- use properties.

Credit Issues: Borrowers with credit challenges, such as recent bankruptcies or foreclosures, may find it easier to qualify for Non-QM loans compared to traditional mortgages.

Here are the key characteristics and features of Non QM mortgages:

Higher Debt-to-Income (DTI) Ratios: Non QM mortgages often permit higher DTI ratios compared to QM loans. This means borrowers can allocate a larger portion of their income towards housing expenses.

Interest-Only Payments: Some Non QM mortgages offer the option for interest-only payments for a specified period, which can lower monthly payments but may result in a balloon payment at the end of the interest-only period.

Some Non-QM loans offer negative amortization, where the loan balance increases over time. These features can make initial payments lower but come with higher risk and potential for payment shock later.

Alternative Documentation: Non QM mortgages may allow borrowers to provide alternative forms of documentation, such as bank statements, asset-based income, or stated income loans, to verify their income and assets, making it easier for self-employed individuals or those with irregular income streams to qualify.

Prepayment Penalties: Some lenders in the Non QM mortgage market may include prepayment penalties if borrowers pay off their loans early.

Asset Depletion Loans: Some Non QM mortgage lenders consider a borrower’s assets as income, allowing individuals with substantial assets but limited income to qualify for a mortgage.

Fixed and Adjustable Rates: NonQM mortgage loans come in both fixed-rate and adjustable- rate options, providing flexibility to borrowers.

Shorter Waiting Periods: Non QM mortgage loans may have shorter waiting periods after significant credit events like bankruptcy or foreclosure compared to QM loans.

Investor-Focused: Non QM mortgages are often sought by real estate investors looking to finance investment properties, as they offer more flexible terms.

Private Lenders: Many Non-QM loans are originated by private lenders and not backed by government agencies, so they may have unique underwriting criteria and guidelines.

Types of Non-QM Loans.

Debt Service Coverage Ratio (DSCR) is a financial metric used by lenders to assess the ability of a borrower to cover their debt obligations, particularly for loans like mortgages and commercial real estate loans.

Bank statement loans are a type of mortgage loan that doesn’t conform to the standards set by government-sponsored entities like Fannie Mae and Freddie Mac.

These loans are also sometimes referred to as “bank statement mortgages” or “alternative documentation loans.” They are designed for borrowers who may not meet the strict income and, credit requirements of traditional mortgages but can still demonstrate their ability to repay the loan through alternative means, typically using their bank statements.

Asset depletion loans are a type of mortgage loan that allows borrowers to use their liquid assets, such as savings, investments, or retirement accounts, to qualify for a mortgage, even if they have limited income or employment history.

These loans are often used by individuals who may have significant assets but do not meet the traditional income requirements for a standard mortgage.

Interest-only loan is a type of mortgage or loan in which the borrower is required to pay only the interest on the principal balance for a specified period, typically for a few years.

During this initial interest-only period, the borrower is not required to make principal payments. After this period expires, the loan typically converts to a fully amortizing loan, and the borrower must start repaying both the principal and interest on the remaining balance.

Stated Income/Stated Asset (SISA) loan, also known as a “no-doc” loan, is a type of mortgage or loan where the borrower’s income and assets are not verified through traditional documentation, such as tax returns, pay stubs, or bank statements. Instead, borrowers are allowed to state their income and assets on the loan application, hence the name “stated income/stated asset.”

Foreign national loans, also known as an international borrower mortgage, is a type of home loan specifically designed for individuals who are not U.S. citizens or permanent residents (green card holders) but wish to purchase property in the United States.

These loans allow non-U.S. residents to invest in U.S. real estate, whether for personal use, as an investment, or for other purposes.

Foreign national loans typically have specific eligibility requirements and terms to accommodate the unique financial circumstances of international borrowers.

Fix and flip loans, also known as a rehab loan or a flip financing, is a type of short-term real estate loan used by real estate investors and developers to purchase a property, renovate or “fix” it, and then sell it (“flip”) for a profit.

These loans are designed to provide funding for both the acquisition of the property and the cost of necessary renovations.

Fix and flip loans are typically used for residential properties, such as single-family homes, multi-unit dwellings, or condominiums.

Summary:

In the journey towards homeownership, one of the most crucial steps is securing the right mortgage. This course has been meticulously designed to provide you with a comprehensive understanding of various mortgage products, their features, and the benefits they offer to prospective homebuyers. Why it’s important to understand the differences of each product.

Financial implications: Different mortgage products have different interest rates, payment terms, and fees. Understanding these differences can help borrowers choose the product that best suits their financial situation and goals.

For example, a fixed-rate mortgage may be a better option for someone who wants predictable monthly payments, while an adjustable-rate mortgage may be more suitable for someone who expects their income to increase in the future.

Legal implications: Mortgages are legally binding contracts, and borrowers need to understand the terms and conditions of the contract before signing it. Different mortgage products have different legal implications, such as prepayment penalties, default clauses, and foreclosure procedures.

Understanding these implications can help borrowers avoid legal issues and protect their rights.

If you’re not an attorney you should never offer legal advice. Understanding the legal definitions or clauses in the contract will help you in the long run.

Customized Solutions: Flexibility: No two homebuyers are the same, and neither are their financial situations. Different mortgage products offer different levels of flexibility, such as the ability to make extra payments, change the payment schedule, or refinance the loan.

Understanding the flexibility of each product can help borrowers choose the product that best suits their needs and goals.

Cost savings: Some mortgage products offer cost savings, such as lower interest rates, reduced fees, or tax benefits. Understanding the cost savings of each product can help borrowers save money over the life of the loan.

Real estate market: The real estate market is constantly changing, and different mortgage products may be more or less suitable depending on the market conditions.

For example, during a period of low interest rates, a fixed-rate mortgage may be more expensive than an adjustable-rate mortgage.

Understanding the real estate market and the different mortgage products can help borrowers make informed decisions and avoid costly mistakes.

Wealth Building: A mortgage is not just a loan; it’s a tool for wealth building. Some mortgage products offer unique features that can help borrowers build equity faster or invest in other assets while still owning a home.

Understanding these features enables you to make strategic decisions that contribute to your overall financial well-being.

Financial Preparedness: Mortgages represent a significant financial commitment. By offering valuable insight into the various mortgage products, the borrower can better prepare for the financial responsibilities associated with homeownership.

Conclusion

It’s important to note that the specific characteristics and features of Non QM mortgages can vary from one lender to another. Non QM mortgage loans can provide valuable options for borrowers who don’t fit within traditional mortgage guidelines but may come with higher costs and risks.Borrowers considering a Non QM mortgage loan should carefully review the terms and conditions, as well as consult with a mortgage professional, to fully understand the terms and risks associated with these types of loans.

For more information on all motrgage products, including Non QM mortgages, we officer a mortgage sales training course here: Mortgage Product Review.