When your credit is in bad shape, let’s face it, lenders will turn you down. And just when you think your credit score is the last nail in the coffin, one loan could be the answer. Non-Qualified mortgage loans give some people a chance to have a loan.
Non-Qualified Mortgage Loans, or Non-QM as others call it, are loans that do not fit the Qualified Mortgage Definition.
The aftermath of the recent housing crisis pressed lawmakers to draft new regulatory reforms. It gave birth to the Consumer Protection Act and the Dodd-Frank Reform.
There are minimum standards that mortgage lenders need to meet in order to be classified as a Qualified Mortgage. These new laws governing QMs also protect the lenders in the event that a borrower fails to repay his/her debts and files a lawsuit against the lender.
Now, because the rules are complex and stringent, some lenders noticed that it would be impossible for some people to be eligible for QM loans. Non-QMs came about when lenders started to come up with loan programs to cater to these people.
And since they are not QM loans, they lack the liability protection that QM loans have.
Are Non-QMs Safe?
Just because they are not Qualified Mortgage loans, it does not mean that Non-QMs are high risk.
Some lenders of this type of loan will still look at your documents and scores. But instead of denying the borrower’s application because of some problems they see in these papers, they will adjust the interest rate or down payment to cover up for these deficiencies.
One example of a Non-QM loan is the “Interest-Only” Loans. Who offers them? Big banks, such as the Bank of America and Chase, make Interest-Only loans available to those who are looking for one.
As its name suggest, the borrower is required to pay the interest from the principal amount within a given term. After this term, the principal will then be paid off. This can be done through a lump sum payment, or the mortgage can be refinanced.
Because of this, applicants may have to go through a rigorous underwriting process. Borrowers may be required a higher FICO score and a very Low LTV to qualify.
Are Non-QMs for Everyone?
Borrowers who have sporadic income but having large assets are the target market for this loan type. For example, there are many Americans who have a steady flow of money but lack the ability to provide a W-2. This does not mean they do not have the ability to repay the loan which is required for a QM. A Non-QM can be perfect for them.
Non-Qualified Mortgage lenders give loan opportunities to individuals who won’t be eligible for a QM loan but can very well afford it. Without this loan type, there will be a huge inadequacy of financing options. Many Americans won’t be able to stay in their homes or buy properties.
Talking to a lender will help you understand Non-QMs better. A lender will also advise you whether it is perfect for you or not. Do not hesitate to learn more about it.