Today it is not as difficult as you might think to find a non-qualified mortgage lender. There are many options out there as more and more lenders jump on the non-QM bandwagon. There are many lenders willing to offer non-traditional mortgage programs despite the industry’s urging to ensure that every loan meets the Qualified Mortgage Guidelines. The one factor that helps encourage banks to provide these loans is the need to meet the Ability-to-Repay Rules, whether the loan is a Qualified Mortgage or not. This means the lender determined that you can afford the loan; they are not just basing the assumption on the information you provide – they actually verify it to ensure its validity.
What not to Look For
When you look for lenders willing to think outside of the box, you do not have to think subprime. That is not what these loans are all about. Generally, people that qualify for the self-employed non-QM loans are those that have excellent credit and great income, however, their income is not as straightforward as someone that receives a regular paycheck and W-2s. Because of this, the lender must use the bottom line income on the applicant’s tax returns. If there are numerous expenses written off, that income might not qualify the borrower as the maximum debt ratio for QM loans equals 43%. So as you can see, many non-QM borrowers are good candidates for a loan; they are not subprime borrowers.
What Types of Loans does a Non-Qualified Mortgage Lender Provide?
It helps to know what type of loans you need to look for if you do not meet the standard mold for a Qualified Mortgage. Any loan that meets any of the below criteria falls under the non-QM guidelines:
- Interest only loan – A loan that only requires interest payments in the beginning of the term and fully amortized payments after the specified period
- Loan that allows a debt ratio higher than 43%
- Loan that do not require standard income verification, such as tax returns. Instead, they use asset verification or another alternative method to document your income
- Loans that charge more than 3% in origination fees
Fannie Mae, Freddie Mac, FHA, VA and the USDA do not offer loans to anyone that meets the above criteria. This leaves the borrower to find non-QM loans, which do exist.
Figure out your Situation
Before you start looking for a non-QM lender, you need to determine why you need one. Is it strictly because you work for yourself and do not have standard income? Maybe you need a non-QM loan because you have a debt ratio that exceeds 43%, but you have excellent credit and plenty of assets to make up for it. Yet again, maybe you have borderline credit that Fannie Mae and Freddie Mac will not accept, but a private lender might if you have compensating factors.
The key is to figure out the exact reason a conforming or government-backed loan does not work for you so that you know what type of lender you need. Certain lenders cater strictly to self-employed borrowers while others work with borrowers that are slightly risky, yet have enough other factors to compensate for the riskiness. Some lenders take all risk levels, making up for the risk by charging more on the loan, as the fee restriction does not apply to them if they provide non-QM loans.
Finding the Right Lender
Finding the right non-qualified mortgage lender starts with private lenders. You need to find lenders that keep the loans on their own portfolio since they cannot sell it in the secondary market. This works for private lenders because they are able to set their own requirements for the loan rather than listening to the requirements of the investors. This allows lenders to make exceptions and changes as they see fit. Typically, smaller, private lenders offer this type of service.
You can start with the banks in your local area. A bank you do business with already is the perfect start as they already have a relationship with you and know some of your financial tendencies. If you cannot find a lender in your area that offers portfolio type loans, you can search nationwide. A quick search online will give you access to lenders that offer loans in your state and for borrowers that are self-employed.
Finding the right non-qualified mortgage lender for your home purchase might take a little more legwork, but it is not impossible. Figure out why you need to step outside of the QM guidelines and make your loan application as attractive as possible in order to make the process as simple as you can. The more compensating factors you have, such as many months of reserves, great credit scores, or stable income, the more likely it is that you will be able to find a lender willing to help you.