Non-Qualified Loan

3 Things to Avoid While Improving Credit Score

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These days, having a less than perfect credit score ain’t all bad. If you fall short of getting a 700 on that credit report, you’ll still find lenders who’ll be willing to accept you as a borrower. Loan programs like those administered by the FHA are also more forgiving of those with blemished credit.

Legislation like the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 have also paved the way for banks and credit unions to offer financial products outside of the prescribed loan guidelines. If you are self-employed with limited documentation, you could still be granted any of the so-called ‘non-qualified’ mortgage products like stated income or no documentation mortgage loans.

Is a non-qualified loan the answer to your financing needs?

The information above should prove useful if you really need to buy a house now. However, if you can hold off on the purchase, it would be wise to work on improving that credit score first. Disputing errors on your credit report and seeing to it that bills are paid on time are just two things you can do toward this end.

To ensure that you don’t fall off the wagon while building better credit, here are three things you should avoid.

1.Moving debt around

Owing a considerable amount of debt has an adverse effect on your credit score. As such, it could be tempting to move debt around so this can be resolved quickly. However, moving debt around could lead you to owe more, which could then be more difficult to pay.

2. Opening too many credit accounts

Avoid opening too many accounts in order to have a better credit mix. This practice can pull down your credit score. What you can do instead is focus on having one or two credit cards that you can maintain.

3. Failing to update relevant personal information when necessary

Not informing your creditors that you’ve changed addresses can lead to bills not being received on time. This could lead to late payments for bills and other forms of debt. In the same manner, failing to notify of a name change could result in inaccuracies on your credit report.

Get more insights on improving your credit score from a reputable lender.

What You Need to Know About No Documentation Mortgage Loans

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The early 2000s proved to be the bane and boon for the mortgage industry. A large group of would-be homebuyers emerged with the housing boom. Unfortunately, the demand caused real estate prices to go up. Many buyers had limited financial means and tainted credit so the lenders got creative. Thus, the no documentation mortgage loans were born.

Commonly known as ‘No Doc’ loans, this financial product normally doesn’t have the usual verification requirements that most loans have. This means that a borrower need not present proof of employment or paperwork listing income and/or asset sources. Usually, the credit report would suffice. Indeed, no documentation loans were abundant. Anyone with semi-decent credit could get home financing, in the form of a jumbo loan even.

The proliferation of no documentation mortgage loans spelled disaster for the industry. With lenders being more than willing to originate loans sans thorough verification procedures suffered from too many defaults. These combined factors led to the 2008 mortgage crisis.

Pricing adjustments

Though no documentation mortgages were common before 2008, they were often subject to enormous pricing adjustments. The loan-to-value (LTV) and combined-loan-to-value standards placed restrictions on the financing amount most borrowers could get.

»What financial product makes the most sense for your LTV rate?»

Back then, an applicant who could only provide a credit report was only offered financing up to 80 percent of the CLTV. Meanwhile, those who wanted to refinance and had built equity on their home were not subjected to pricing adjustment.

Alternative loans

No documentation mortgage loans still exist these days, however, lenders who offer them have become much more discerning of applicants. To qualify for one means having an excellent credit score and a remarkedly sizable income.

If you find yourself unable to meet qualified loan criteria, it’s best to seek out alternative options that are much more sound and attainable. Some that fall under the non-QM spectrum are  interest only and stated income loans.

»Speak to one of our reputable lenders to make an informed decision.»

Bulletproofing Non-Qualified Mortgages

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The federal government has identified what characteristics a qualified mortgage should have. Measures are also in place to protect lenders from the legal repercussions of a default. Nevertheless, banks and private financial institutions are offering non-qualified mortgages because there is still a demand for them. There’s an entire demographic out there with low credit scores and a debt-to-income ratio that’s well over 43 percent. These individuals need financing and lenders are there to deliver.

Since non-qualified mortgages are primarily intended for risky borrowers, lenders are taking steps to bulletproof this type of offering. Here are some measures currently in place.

Demonstrated willingness to pay

A borrower’s financial viability is demonstrated through high credit scores. Lenders are also favoring individuals who’ve had experience in paying a mortgage before. However, that’s not to say that new homebuyers won’t be able to qualify. Further documentation may be required of those applying for a home loan for the first-time.

Full documentation is required

Paperwork showing all possible income sources, a record of assets, and a complete employment history is also a requirement for most Non-QM options. Borrowers with strong mortgage histories with a bank, private lender, or credit union may benefit from having documentation requirements streamlined.

»Learn about common loan documentation requirements here.»

Flexibility for high-income earners

Lenders are designing flexible options for their high-income clientele. Individuals with hefty commissions or expansive investment portfolios are usually given unique repayment options. One such product is the interest only loan, which permits the borrower to only pay off the interest within the set loan term and work on paying the principal later on.

Exceptional process and controls

In the past, banks have had a hard time implementing solid origination and servicing practices. This is now starting to change. Financial institutions are implementing guidelines for non-qualified mortgages based on:

  • Consistent application of underwriting standards.
  • Adherence to fair-lending requirements during the underwriting and loan pricing processes.

»Do you fit the profile of a Non-QM borrower? Find out today!»

Pros and Cons of Interest Only Loans

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Are you looking for a house you can live in for a couple of years? Or perhaps seeking a financing option that will make it easier for you to purchase a home today? If you answered yes to both, consider interest only loans.

What is an interest only loan?

This type of non-qualified loan allows the borrower to pay only the interest on an existing mortgage. It usually runs between 5 and 7 years, after which the borrower may choose to do one of the following:

  • Refinance their home
  • Make a lump sum payment
  • Begin paying off the principal

A borrower who chooses this option must remember that the loan balance remains unchanged because no payment is being put towards the principal during the first couple of years.

»Find a loan that best fits your financial circumstances.»

What are the pros of getting this type of loan?

Some noteworthy advantages of an interest only loan are:

  • Low monthly payments
  • A borrower could qualify for a larger amount on his second loan
  • Relatively low monthly payments mean that someone with a hefty sum of cash can divert a portion of his liquid assets towards other investment ventures. When the loan term is up, he would be able to pay a lump sum on the property, while still having extra funds.
  • The monthly mortgage for an interest only loan is tax deductible.

How about the cons?

Interest only plans also have these drawbacks:

  • Many can’t afford paying off the principal when the loan term is up.
  • The home purchased may not appreciate as fast as expected.
  • Future income may not match borrower’s expectations.

How do I know if this is the right choice for me?

Apart from the desire to live in a property temporarily, you should only consider interest only loans if you are sure that whatever income you have will increase in the future. Otherwise, you could find yourself at risk of owing more money on the house you bought, since you’ll have to deal with both the combined amount of the principal plus interest each month.

»Consult with a reputable lender today.»

Benefits of Non-Qualified Mortgage to First Time Homebuyers

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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.

»Speak to a lender about your financing needs»

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.

»Do you qualify for a NON-QM? Click here to find out!»

Learning the Basics of a Non-Qualified Mortgage Loan

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Saying that US loan products are as varied as the borrowers who apply for them isn’t far-fetched at all. In fact, many loan types have been created to cater to a specific type or types of borrowers. One of which we’ll be discussing in detail below – the non-qualified mortgage loan.

January 10, 2014 marked the implementation of the Dodd-Frank Act. Essentially, it broke down residential mortgage loans into two categories – qualifying and non-qualifying.

Under this rule, the loan should meet the following parameters to be considered a “qualified” loan:

  • A borrower’s debt-to-income (DTI) ratio should not be more than 43%.
  • The loan’s fees cannot exceed the cap provided in the regulation. This could vary depending on loan size.
  • A qualified loan may not have balloon payments.
  • The maximum loan term is 30 years.

»Find out what loan products you can qualify for.»

When the loan does not meet all of the aforementioned requirements, it is then considered non-qualified. For this type of loan, a lender must then meet what’s collectively called as ability-to-repay standards. These are composed of specific components designed to establish a borrower’s ability to repay a loan continuously for the duration of its specified term.

The Recipients

Borrowers who can benefit the most from a non-qualified mortgage loan fall into one of these two extreme categories.

  • Very wealthy individuals who have highly liquid assets but with irregular income. Rich people typically use non-qualified mortgage loans as a “bridge” loan. They apply for one while awaiting the completion of some large business transaction expected to result in a large stream of cash.
  • First-time homeowners that come from low-income areas. Their present economic circumstances make them ineligible for the qualified loan option. As such, a loan that does not conform to the parameters of a standard loan.

Lender Risk Factor

While it may not conform to federal standards, non-qualified mortgages aren’t necessarily high risk. In many cases, a lender will actually require that a borrower has an extremely high credit score, a steady job, and a sizeable asset portfolio.

Stated Income

Banks or private lenders allow for stated income. This means that a borrower may simply state how much his income is on the application form, without the need to present paystubs and other similar documents. Income is verified by reviewing bank statements.

A reliable lender will be able to walk you through the particulars of a non-qualified loan and ascertain whether it’s a good fit, considering your financial circumstances.

»Connect with one in your area!»