Updated Jan, 2016
Non Qualified Mortgages: What Are They?
Effective January 1, 2014 there will be essentially two groups of mortgages: “qualified” and “non-qualified” mortgages. While it remains to be seen between now and January exactly what lenders will do regarding qualified and non qualified mortgages – one thing is for certain: lenders will treat each group differently.
There isn’t anything in the upcoming regulations that prevents a lender from offering a “non qualified mortgage” and there are plenty of people who are at lenders who are planning on offering these loans. If a lender offers a non-qualified mortgage, there will be additional underwriting considerations and documentation requirements for mortgage loans.
The rules regarding the Ability-to-Repay rules do NOT say that lenders shouldn’t or cannot offer non qualified mortgages – they just specify that the lender must retain proper evidence to demonstrate that ability-to-repay has been carefully analyzed by the underwriters and that the more strict underwriting guidelines have been applied to the rules.
In the event that a loan meets the new “qualified mortgage” definition, they will receive a safe harbor under the Ability-to-Repay rules. That that means is that if a loan is a “qualified mortgage”, then there is a rebuttable presumption that the borrower had the ability to repay and the safe harbor rules protect the lender from regulatory criticism and potential consumer lawsuits.
What it also means is that in the event that there are opportunities for lenders to provide non-qualified mortgages to people and throughly vet them and potentially have a good source of revenue from clients who don’t fit the traditional mold. If you are interested in speaking with a lender about a non qualified mortgage, simply submit your information here and we will match you up with a great non qualified mortgage lender who can help you get your loan done.
CFPB: Qualified Mortgage (QM) Criteria
The CFPB has put out a helpful flyer that highlights the criteria of a Qualified Mortgage. From the flyer – there mandatory product features of a Qualified Mortgage are:
Mandatory product feature requirements for all QMs
- Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed);
- No risky features like negative amortization, interest-only, or balloon loans (BUT NOTE: balloon loans originated until January 10, 2016 that meet the other product features are QMs if originated and held in portfolio by small creditors);
- Maximum loan term is less than or equal to 30 years.
There are also three main categories of QM outlined:
Three main categories:
1. General definition category of QMs
Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM.
2. “GSE-eligible” category of QMs
Any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA, or USDA is QM regardless of the debt-to-income ratio (this QM category applies for GSE loans as long as the GSEs are in FHFA conservatorship and for federal agency loans until an agency issues its own QM rules, or January 10, 2021, whichever occurs first).
3. Small creditor category of QMs
If you have less than $2B in assets and originate 500 or fewer first mortgages per year, loans you make and hold in portfolio are QMs as long as you have considered and verified a borrower’s debt-to-income ratio (though no specific DTI limit applies).
And finally – the CFPB points out that just because a mortgage is considered a non qualified mortgage, it doesn’t mean it is bad:
EXTRA NOTE: Even if a loan is not a qualified mortgage, it can still be an appropriate loan.
You can originate any mortgage (whether or not it is a QM) as long as you make a reasonable, good-faith determination that the consumer is able to repay the loan based on common underwriting factors. You can continue to rely on your sound, tested underwriting guidelines that you have used in the past to make loans that have generally performed well, as long as you document the information you consider.
Are Non Qualified Mortgages The Same as Subprime?
Back in the early 2000’s, sub prime mortgages were all the rage. They were very popular and many people think that they led to the “subprime crash” where credit became tight again. While non qualified mortgages are not the same as subprime – they are similar in that they are not “conforming” mortgages that can be wrapped up and sold to GSE’s.
Some of the common questions about non qualified mortgage programs include:
What is a SIVA loan?
SIVA stands for Stated Income Verified Asset loan. This type of loan allows you to state your gross monthly income and requires the lender to verify assets – usually done by you providing bank statements or brokerage statements or some type of document that verifies that you have the assets you claim to have on the loan application.
What is a SISA loan?
SISA stands for Stated Income Stated Assets. It means that the loan guidelines allow you to state your income and assets – meaning you will not have to verify either assets or income.
What is a No Doc loan?
Although guidelines will vary by lender, a true “no doc” loan program is where you don’t have to verify anything other than your citizenship.
Can I be declined if I state my income too high?
Yes. It is possible to have your loan declined for the reason that your stated income doesn’t match your job description and title. If you are a waitress that declares you make 50,000 per month, that may be an example where an Underwriter would look twice at your file. Underwriters have resources to see the range of pay based on title and job description – and while not always accurate, they are typically in the ballpark.
It is also possible that the underwriter or lender will require that you fill out a form (IRS Form 4506), which allows the lender to request IRS verification of your tax returns for the previous two years.
Is there a minimum credit score?
Usually, yes. Minimum credit score requirements will vary by lender and program. There is no one “minimum credit scores for stated income loans are 620″ kind of rule – the minimums will vary by lender.
Is there a minimum down payment required?
Usually, yes. Minimum down payment requirements will vary by lender and program. The general rule of thumb with stated income programs is that they will require a higher down payment than conventional loans – but it will vary by lender.
Who does non qualified mortgage loans?
With each passing day, more and more lenders seem to be jumping into the game of offering at least one or two non qualified mortgage programs. Because more lenders are offering more programs each day – it is always good to speak with multiple lenders if you are looking for the right non qualified mortgage for your situation. Each lender will have a different program mix and you might find that you need to speak with 4 or 5 lenders before finding the right loan for your needs.
Remember – each lender will have their own guidelines for their own non qualified mortgage programs – so you will want to check with multiple lenders who can possibly help you. Some programs may be designed for the self-employed borrower who needs to do stated income, some may be for those with less-than-perfect credit due to a foreclosure or short sale and some non-qualified mortgage programs may offer “zero down payment” options.
Self Employed? You May Still Qualify
One of the biggest groups of people who are still having trouble getting a mortgage are those people who are self employed. With conventional loans, you will be required to provide at least 2 years worth of tax returns and if you write everything off, it means the lender will not think you have enough income. Many self employed people have been in business less than 2 years and many write everything off. Does this mean that they shouldn’t be able to get a mortgage? hardly. It means that if you are self employed, you will want to look for a good lender who offers a non qualified mortgage program that can help you. Depending on the lender they may have a product that is designed for the self employed borrower – which is why it pays to speak with multiple lenders.
More Non Qualified Mortgage Information
Here is just a few more announcements/links to information on non qualified mortgages from credible places that may be able to help you learn more about your non qualified mortgage options.
Just a few of the highlights in this guide are details about the Ability-To-Repay rule, the different types of qualified mortgages, safe harbor rules and more. This guide is pretty comprehensive, although it can be somewhat … boring to read. Highly recommended though if you are interested in Qualified Mortgages vs. Non Qualified Mortgages.
Other relevant non-qualified mortgage information can be found at these links:
- Inside Finance guide to Non Qualified Mortgages
- NAFCU Non Qualified Mortgage Definition
- Non qualified mortgage lenders.
- Non qualified mortgage product announcements.
Non Qualified Mortgage Quotes
Sometimes the hardest part of getting a non qualified mortgage can just be finding a lender who offers a loan program that is right for you. The easiest way to get a non qualified mortgage is to speak with multiple lenders about your situation and then seeing what options they offer and which one (if any) is right for you. Get a free quote here and get matched with a lender who can help you get a free mortgage quote and see what programs you may be eligible for. Getting a quote is free, easy and only takes a few minutes to get started.