Having a home of your own is a wonderful accomplishment. It is symbolic of many things – independence, security, status. Nonetheless, the greatest thing about home ownership is that it teaches financial responsibility. There’s nothing like paying a monthly mortgage to understand and appreciate the beauty in budgeting. In some cases, the present circumstances of a borrower prevent him from qualifying for the usual loan products. Fortunately, there’s such a thing as a non-qualified mortgage.
Before we launch into a discussion of this loan’s benefits, let’s first take a quick look at what gave rise to the NON-QM.
Non-Qualified Mortgage and the Demand that Prompted It
Even now, when there are many affordable places to live in the US, buying real estate is not cheap. In most cases, you’ll need to put down a sizable down payment in order to snag that three-bedroom suburban townhouse. The process is not easy either. Conventional loans require documentation to prove that you are a secure investment. This includes tax forms and employment records. Federally backed mortgages just mean more paperwork.
There are those who don’t fit the profile of a conventional borrower. These individuals are either extremely wealthy but don’t have regular jobs, or have household incomes that are well below the average. Still, these people have the right to seek a means towards homeownership.
The solution? A loan option with a DTI ratio above 43% and none of the usual documentation.
Non-Qualified Mortgage and Its Appeal to Lenders
Lenders, armed with liability protection from the Dodd-Frank Act, are being encouraged to originate this type of loan due to demand and potential profit. They can also enjoy specific advantages like:
- Reduced competition
- Minimal infrastructure changes
Non-Qualified Mortgage and Its Benefits to Borrowers
Here are some of the noteworthy benefits of a non-qualified mortgage:
- There’s no need to present an extensive amount of paperwork in order for the lender to be confident in the borrower’s ability to repay the loan.
- Income verification can be done through bank statements, not tax forms and paystubs.
- The term can go up to 40 years for this type of loan.
- Fixed assets can be used to qualify for a loan, in the event that money/income falls short.