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Non-Qualified Loan

How Big can a Jumbo Loan be?

July 31, 2017 By hbranzuela

One example of a non-qualified mortgage loan is a jumbo loan. It is called a “jumbo” loan because it surpasses the established conforming loan limits.

During the attempt to define what a conforming loan is, one goal was to establish a limit for the loanable amount. This limit was laid down by the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).

In 2017, most conventional mortgage loan are very well within the 424,100 limit. There are a few exceptions for high cost areas such as those in Florida and California. These high cost areas have loan limits exceeding $636,150.

How Big is a Jumbo Loan?

Jumbo loans are, more often, more than half a million dollars. It is intended to finance luxury houses. Most of these properties are located in high cost areas where the real estate market competition is really steep.

Huge Money = Stringent Requirements

In conventional loans, there are standard credit requirements a borrower needs to meet in order to qualify for the loan. Since a jumbo loan is considered a nonconforming loan, it is not backed up by the government should a borrower file lawsuit against the lender. Also because of the huge amount of money involved, the lending institution is taking a greater risk on jumbo loans.

If you are trying to apply for this type of loan, expect to be under stringent underwriting, and tighter credit requirements.

Credit Score

Make sure you have a good credit standing with a score of at least 620. This is considered a fair credit score. But to increase your chances of getting approved on a jumbo loan you will  need a score higher than 720.

Documentation

In the years before the U.S. recession happened jumbo loans were approved with less paperwork required. Many can go away with this loan with very little income verification needed. Much has changed in the recent years.

When the ‘Qualified Mortgage’ loan was defined, it increased the need for standard documentation and verification. While jumbo loans can be considered Non-QMs, lenders are now asking borrowers to provide documentation as proof of their income.

Examples of these are Proofs of income and liquid assets, and proofs of ownership for non-liquid assets.

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Down Payment

With a stellar credit, you may find a one that only requires a 10 percent down payment. This may mean lesser money to put upfront. However, a small down payment may increase your monthly interest rate or affect your loan terms.

Make sure you assess your financial situation and you read the loan agreement first before you decide to pay cash up front.

Debt-to-Income Ratio

Not all jumbo loans are non-QM. Those that fall under the qualified mortgage bracket may have standard DTI requirements. Your DTI cannot exceed 43% for qualified jumbo loans.

If your DTI is way over that cap, a non-QM jumbo loan is what you need. It does not mean though that the lender will not perform a verification if you can afford the monthly payables. There will still be a need for verification.

Income

One big factor that comes into play is income. Because of the huge size of the loanable amount, the income is where lenders find security. Your income and other reserves must be able to cover this big debt. For the self-employed, you may need to provide tax returns and bank statements. For traditional borrowers, pay stubs and W2 be asked from you.

>>Click here to find a jumbo loan lender>>

Is There an Ideal DTI Ratio for QMs, Non-QMs?

January 23, 2017 By Justin

Is There an Ideal DTI Ratio for QMs, Non-QMs?

January marks the third year the CFPB has implemented certain rules for safer mortgages with improved protections. One characteristic that sets qualified mortgages and non-qualified mortgages apart is the debt-to-income ratio. For QMs, the DTI ratio should be 43% or less. If your DTI exceeds 43%, does that make your loan automatically nonqualified? Do non-qualified mortgages require DTI ratios, if at all?

Do you a hard time qualifying for a loan?»

DTI Ratios and QMs

The CFPB’s ability-to-repay (ATR) rule requires the lender to verify a borrower’s income and debt load. These elements are embodied by the DTI, which measures your income relative to your debt. The resulting ratio, if it’s higher or lower, signifies that you are capable of repaying the loan or living precariously.

Calculating the DTI is essentially adding up all your debts for the month, mortgage, car loan and others. Once you get the sum, you divide it with your gross monthly income. For instance, you make $6,000 in a month and $2,000 of that goes to your debt. Then your debt to income ratio is 33%. Actual results may vary among lenders who have their own calculations.

In the example above, the DTI ratio is less than 43% and thus eligible for a qualified mortgage. But even if the ratio exceeds 43%, one can still obtain a QM. The CFPB allows for these exceptions:

  1. Small creditors must evaluate the DTI but are permitted to underwrite QMs for those with a higher-than-43% DTI. For QM purposes, these are lenders whose loan portfolio is less than $2 billion the previous year and originated less than 500 closed-end residential mortgages subjected to the ATR requirements.
  2. Larger lenders can originate loans with the higher than required DTI ratios but they must have made a reasonable, good-faith determination per the CFPB rules that the borrower can repay the loan.

Moreover, the DTI cap or 43% does not apply to government-backed loans like FHA and VA, or those eligible to be sold to Fannie Mae and Freddie Mac. These loans belong to GSE-eligible category of QMs.

Depending on your situation, you could get a mortgage loan.»

DTI Requirements for Non-QMs

Nonqualified loans are a go-to option when your DTI ratios are too high for a QM even with the exceptions. A high DTI ratio sends mixed signals to the lenders because your other debts could deter you from repaying your loan with them.

Accordingly, non-QM lenders allow for DTI ratios higher than 43% provided that your credit score/history is decent, your assets are adequate and verifiable, and your income is verifiable through documents other than the usual paperwork.

It’s thus not surprising why self-employed professionals and high net worth individuals are drawn to nonqualified loans. They are flexible enough to include borrowers whose debt-to-income ratios and income tend to shut them out of traditional mortgages.

Even with their less stringent guidelines, lenders of nonqualified loans are still required to do an ability-to-repay assessment.

By clicking this button, you can talk to lenders and explain your current situation.»

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