Non-Qualified Loan

Getting a Non-QM Loan if You Are Newly Self-Employed

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Getting a Non-QM Loan if You Are Newly Self-Employed

A stable employment record is one of the most common qualifications for getting a mortgage. This leaves out a large chunk of the borrower market who are either self-employed or have seasonal jobs.

For individuals who have just ventured into self-employment, the common barrier is in showing evidence of steady income for the past two years. The shift in employment status will typically not look good for qualified mortgage lenders.

Good to know, however, that there are non-qualified mortgage alternatives that you can look into if your mortgage needs are urgent.

Non-Qualified Mortgage Defined

Non-Qualified Mortgages are simply home loan programs that do not meet the standards set by the Dodd-Frank Act of 2010. This rule establishes certain qualifications that serve to protect the lender and the borrower from the mess of default. These requirements include:

  • a DTI ratio not exceeding 43 percent
  • standard proof of income
  • standard amortization
  • points not exceeding 3 percent of the loan amount

Newly self-employed individuals would normally have a problem with giving a proper proof of income. That makes it hard for them to qualify for qualified mortgages. But that does not mean getting a home loan is impossible.

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A non-qualified mortgage is any of the available home loan programs today that have qualifying requirements not consistent with the aforementioned.

That means if you are newly self-employed, have a commission-based or seasonal job, or receive income from different sources, a Non-QM loan can get you covered.

From the look of it, it seems like Non-QM loans are risky business for borrowers, only taking advantage of their vulnerable situation. Fortunately, this is not the case. Non-QM loans still abide by the Ability to Repay Rules which ensure that the borrower’s income, employment, and credit history are duly verified. The lender still ensures that you have the capacity to repay the money you owe.

The Problem with History

Another common hindrance to loan approval for many newly self-employed individuals is the lack of income history as basis for the loan. If you have just started your slate, it’s likely that you still have very short history to show for your income. Lenders would like to see a positive possibility from your income sources, no matter the period. You can make this possible by:

a) opening a business within the same industry that you had been working for prior to your self-employment
b) partnering with someone who is experienced in the industry
c) being able to show the availability of financial reserves which can cover you should your business fail
d) showing non-delinquent payments from the time you started your self-employment

Non-QM loans are not backed by secondary markets that is why the programs are as diverse as they are. Lenders formulate their own qualifying criteria. You can ensure the approval of a non-QM loan if you have good income history no matter how short and a good financial backing via assets.

Speak with a lending professional today to be guided in your Non-QM application process.

Financing with an Immigrant Spouse?

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Financing with an Immigrant Spouse?

Owning a home when your partner in life is not born in the states can pose some questions on acquisition. Questions like: “What do I need to present?” “Does it cost more?” or even “Is it possible at all?”

Yes, it may be a little difficult, but it is indeed, possible.

To begin with, you may pursue with the purchase yourself without using your spouse’s income. However, if this does not suffice, you may have to jump through a few hoops to obtain the needed financing with your spouse’s income.

Your spouse must be a legal citizen

The most important thing you need to show to the lender is your spouse’s legality in the country. You must be able to establish a document showing his or her permanent residency. In most cases, this suffices.

However, if your spouse is still not yet a permanent resident, you must instead be able to show the lender a proof that your spouse can continue to stay in the country within the next three years at minimum. If not, you must be able to show that the temporary residency will be renewed.

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How about my spouse’s credit?

Another important aspect that needs considering is your spouse’s credit history. If he or she has not been living in the country for more than three years, it is expected that he or she might not have been able to establish a credit score yet. The process of getting a FICO may take around 12 months or a year.

If your plan of getting financing is not urgent, you can work your spouse’s credit score starting now by using credit accounts that will be reported to the credit bureaus.

However, if your plan of getting a mortgage, for example, is in the near future where there is little time to build credit history for your spouse, you may utilize non-traditional credit sources that show your spouse’s creditability as a payor. This includes his or her utility bill payments, rent payments, insurance, and tuition payments, among others.

Your spouse must be able to show consistent payments without delinquencies for the past 12 months.

Income considerations

Your lender will ask for two years worth of job history from your spouse. If he or she has worked in the same industry here and in his or her country, the job history will be accounted at least, if not the income.

The bottomline

Yes, it is extra difficult to prove to the lender that you are a safe deal with an immigrant spouse as co-applicant.

If you can qualify for financing on your own, it would be a smarter idea not to include your spouse’s name on the loan. Many lenders have negative biases on immigrant applicants and that in itself may lower your chances of getting the best terms that you could otherwise get on your own.

Talk to your financial advisor to get a guided, expert advice on a better, wiser option to get around your dilemma.

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Balloon Mortgages: Will They Float or Burst This 2017?

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Balloon mortgages have floated in and out of the U.S. mortgage industry. It’s easy to see why: they offer smaller monthly payments until a big one comes at the end of the loan. The Consumer Financial Protection Bureau has released guidelines that exclude a balloon payment feature in qualified mortgages, subject to certain exceptions.

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Balloon Mortgages: How They Work

Balloon mortgages have features similar to an adjustable-rate mortgage and a fixed-rate mortgage. Let’s look at their characteristics:

Rate. Balloon mortgages often have rates lower than other mortgages. The rate is fixed throughout the life of the loan.

Payment. Monthly payments on balloon loans are slightly lower and fixed. One can make smaller payments or interest-only payments until such time as a one-time big-time payment is required to pay off the loan.

Term. Balloon mortgages have shorter repayment schedules, usually spanning five to seven years.

Due date. This is when the larger monthly payment becomes due. The borrower has the option to refinance, sell off the property or pay off the loan in full in cash.

Borrower. Given its nature, a balloon mortgage is for borrowers who don’t have much cash in the short term but can afford to make a large final repayment as the loan term ends.

Balloon Mortgages: How to Deal With the Due Date

If you are dreading your mortgage’s due date, here are some actions you can take:

Option 1: You can take out another loan and use the loan proceeds to pay off the old balloon mortgage. This allows you to repay the old loan in full and fly into the safety of a fixed-rate mortgage.

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Consider This
Refinance makes the most sense when rates are lower or at least on the same level when you first took out the loan. To refinance, you must meet the lenders’ qualifications — credit, income, assets, and equity. Also when you switch from a 5-year or 7-year balloon mortgage to a 15-year or 30-year fixed mortgage, you are effectively extending the time you need to repay the mortgage loan.

Option 2: You can sell the home and use the proceeds from the sale to pay off the balloon mortgage in full.

Consider This
A sale makes the most sense if the value of the home exceeds the debt owed on the loan. Otherwise, you could be pushed to do a short sale, which is a negative mark on your credit report and lowers your credit score in the process.

Option 3: Face the due date and fully repay the balloon loan.

Consider This
This won’t be a problem if you are liquid enough to make the ballooned payment as it becomes due. But for those who can’t produce that twice as much money for the final repayment, they’d have to consider the options above.

To answer the question, it’s hard to tell what future awaits balloon mortgages. One thing is certain: In taking out a balloon mortgage, be prepared to deal with contingencies that come with owning one.

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