jumbo loans Archives - Non-Qualified Loan

There are a variety of Non-QM loan products present in the market. Depending on the borrower’s needs and current situation, one product may help you get the needed financing.

Here are some of the loan products under the Non-Qm territory.

“Beyond-30” Mortgage Loans

This is primarily because of how Qualified Mortgage loans are defined. The regulatory reforms do not allow loan terms that go beyond 30 years. However, there are many consumers looking for a loan with a term stretching as far as 40 years.

If you total the payments in the span of 40 years, you may realize that you are paying a huge interest. Although this is such a long stretch, loans of such kind are still available in the market because they make very low monthly payments possible.

Stated Income Loans

Declare your income and they’ll take your word for it. It’s the basic premise of Stated Income Loans. However, it does not necessarily mean though that you do not provide any document to show your income.

In the QM world, your income has to be fully documented. There is a standard verification and underwriting procedure that needs to be done. Many Americans cannot provide all these papers, and so they won’t be eligible for a QM loan. If this is the case, a stated income loan will work best for them.

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Negative Amortization Loans

Amortization is defined as paying off the loan interest and principal through regular payments. Negative amortization is when you do minimum payments that do not pay off the interest. In the end, this interest will continue to add up.

The unpaid interest will be added to your principal. On the next month, the interest rate will then apply not only to your principal but to the unpaid interest as well.

Although this is not a popular choice for many, there is still a market for this kind of loan.

Jumbo Loans

There are individuals who need extremely large financing. Conforming loans have limits to the amount a borrower can borrow. But because there are some who need and can very well afford to pay such a large amount, jumbo loans are originated by lenders.

It is designed to provide financing for high luxury properties. Because jumbo loans exceed conforming loan limits, they cannot be purchased, securitized or guaranteed by Freddie Mac or Fannie Mae. And because of the huge money involved, there are special underwriting procedures and requirements. Tax implications are also different for this loan product.

Interest-Only Loans

One of the most popular Non-QMs is the Interest-Only loan. Simply put, you pay only the interest in the given term which is usually 4 to 7 years. After this term, you will start paying the principal.

The borrower can then choose to pay off the principal, pay a lump sum, or refinance the loan.

There are many loan products under the Non-Qualified Mortgage bandwagon. What is important is to study your situation and your repayment ability and find the right product for you. Speaking with a lender will help make the search faster.

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They are not your typical mortgage with the usual limit. Jumbo loans are used to buy homes, may be larger or pricier, beyond the conforming loan limits set by the FHFA. As expected of a larger loan, higher standards for qualification, e.g. financial capital, credit and equity do apply but you can always shop around.

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Why Jumbo Loans?

They are for homebuyers who can afford homes with price tags exceeding their county’s conforming loan limits. The conforming loan limit for a one-unit home in most parts of the U.S. is $424,100. This baseline limit for a single-family home is higher in expensive real estate markets like Suffolk, NY whose maximum loan limit is $636,150.

While the FHA is not related with the FHFA, the former’s conforming loan limits are used by the FHA to determine its own loan limits. For example, FHA loans on a single-family home are generally capped at $275,665. For a one-unit home located in a high-cost area, an FHA loan of up to $636,150 is permissible.

Highlights

Limits. Jumbo loans easily exceed the conforming loan limits. Without a threshold to constrain them, house hunters can freely bid for homes beyond $424,100.

Rates. Jumbo loan rates are higher than those of conforming and FHA loan rates. But if seen in a historical perspective, the jumbo rates of today are lower than they were in the past. Their interest rate can also be fixed or variable in varying lengths of repayment.

Downpayment. Jumbo mortgages are known for their 20% down payments. That holds true for some lenders, one lender accepts 5% of the purchase price as down payments. There are also many ways to work your way around the higher down payment standard:

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Piggybacking. Subject to your lender’s approval, you may take out a first and second mortgage at once; the first mortgage will cover the 80% of the purchase price and the second mortgage, either a home equity loan or a home equity line of credit, will take care of the 10%. A down payment of 10% will finish off the transaction.
FHA loans. The FHA insures jumbo loans meant for buying homes in high-cost areas, exceeding its standard $271,050. With an FHA jumbo loan, the down payment could be as low as 3.5%. In exchange for the low down payment, you will pay mortgage insurance premiums.
VA loans. Interestingly, the VA loan limits are based on conforming loan limits. The VA also backs jumbo loans for purchases beyond $424,100 and the down payment could be little to zero.

Requirements

Your eligibility for a jumbo loan would largely depend on your credit history. Lenders typically require a base credit score of 700, although some could go lower to 680. Still, rates are in your favor if you have a good credit score.

Your debt-to-income ratio should not be a hurdle if you keep it low at 43% or 45% at most. This metric will tell the lender if you can comfortably take on the mortgage and able to repay.

Lenders will scrutinize your financial capacity for such a loan. You can boost it by showing asset reserves good for several months of mortgage payments.

Indeed, jumbo mortgages are not just for mansions. In expensive housing markets like California with higher median prices, a million-dollar home is the norm. Just consider this: what if the home you’d been eyeing is priced above your county limit of $424,100 or $636,150? A jumbo loan is a possibility, right?

Check with our lenders if they offer jumbo loans in your area.»

Which Non-QM Loan Product is Best for You