Non-QM loans are an alternative to qualified mortgage (QM) loans. A Non-QM Loan is a type of loan that does not conform to the standards set out by the Consumer Financial Protection Bureau (CFPB) and the federal government for qualified mortgages. Rather than conforming to these guidelines, Non-QM loans still adhere to the CFPB's "ability to repay" rule which requires lenders to evaluate a borrower's finances and set loan terms that they are likely to be able to pay off.
WHO IS A TYPICAL NON-QM BORROWER?
Most borrowers opt for a qualified mortgage (Conventional, Government, or Portfolio mortgage) but a Non-QM mortgage may be the better choice for the following types of borrowers:
- Real estate investors
- Foreign investors
- Self-employedsuch as contractors on 1099 income
- Business owners
- Those with high levels of debt
- Those with recent credit events with a strong ability to repay
- Freelance or gig-economy workers with varying incomes
A Non-QM loan can be helpful for these types of borrowers by allowing for alternative documentation, such as bank statements. Recent (2019) research suggests that nearly 30% of Americans are self-employed, making Non-QM loans a great fit for them. Additionally, investors with verifiable income that meet typical regulatory lending criteria may benefit from Jia Finance’s Debt Service Coverage Ratio (DSCR) program.
WHAT ARE THE BENEFITS OF NON-QM LOANS?
Non-QM loans are favorable to borrowers for many reasons, including:
- For DSCR loans, no income calculations are required
- For DSCR loans, no job history is required (in some cases)
- Credit scores as low as 620 allowed (see Jia Finance DSCR program)
- Less than 1.00x debt-service-coverage ratio (DSCR) on investment properties
- Greater underwriting flexibility with various loan program for qualification
- For Alternative Income loans, tax returns & W2s not required
- Ability to qualify income using assets or asset depletion
For many who wish to purchase a home or invest in real estate, Non-QM loans are the only way to make investment opportunities plausible. With these loans, it's easy to take advantage of time-sensitive investment opportunities as they usually don’t remain on the market for long in addition to having less restrictions.
WHAT ARE THE FEATURES THAT PREVENTS IT BEING A QUALIFIED MORTGAGE (QM) LOAN?
- INTEREST-ONLY PAYMENTS. Lenders that offer an interest-only option don’t require you to pay any of your loan balance down but instead just pay the interest accruing each month.
- NEGATIVE AMORTIZATION. Although this is very rare, you may come across a lender that allows you to make payments for less than the interest charged each month. In this case, your loan balance grows, called “negative amortization” in loan terms.
- BALLOON PAYMENTS. You’ll make a larger-than-usual payment at the end of a set time if your loan has a balloon payment.
- LONGER LOAN TERM. Terms longer than 30 years.
- Points and fees are 3% or more of the loan amount.
While a standard QM loan requires you to verify your income with tax returns,W2s and paystubs, a Non-QM lender might be able to use your bank statementsto calculate income to qualify for your loan. Non-QM lenders often offerprograms that allow you to borrow within shorter timeline of a major recentcredit event like a bankruptcy or foreclosure. You won't have to wait up to sevenyears required by qualified mortgage loan programs.
NON-QM MORTGAGE PRODUCTS
DSCR INVESTMENT LOANS. Private and hard money loans often have high rates and take a while to get approved for, which is not ideal for most real estate investors. Alternatively, both new and experienced real estate investors can benefit from the expanded criteria offered by no-income investment loans which allow you to build your real estate portfolio with fewer setbacks. The Debt-Service-Coverage-Ratio loan uses the rental income of the property to qualify and does not take into account your personal income. The rental income can be in the form of long term (lease) rents or short term rentals (such as Airbnb, Vrbo, etc.).
FOREIGN NATIONAL LOANS. If you are a foreign national residing in a country other than the US and do not have a valid Social Security number, U.S. FICO score, or Individual Tax Identification Number (ITIN) you can still qualify for this type of Non-QM loan.
BANK STATEMENT AND P&L LOANS. Only a bank statement or certified P&L is required for this type of Non-QM loan. Borrowers can qualify with as little as 12 month’s bank statements or P&L history. This loan is often a good solution for self-employed borrowers, business owners, realtors, consultants, and entrepreneurs.
NON-QM JUMBO LOANS. While traditional jumbo loans still often require 20% down, Non-QM lenders offer up to $3 million with as little as 10% down, up to a 55% debt-to-income ratio, and credit scores as low as 660. Jumbo loans with 10% down are often the ideal solution for first-time buyers who might still have large student loans and other types of “good credit debt”. 10% down jumbo loans are also good for high-income earners who are looking to invest their cash in other assets.
ASSET DEPLETION LOANS. Asset loans depletion or utilization loans allow you to leverage assets you already have, including checking and savings accounts, investment accounts, or money market accounts, to secure a loan. This type of Non-QM mortgage is ideal for individuals with substantial liquid assets available. Although asset-based loans are typically associated with high-interest rates, we have access to wholesale rates and favorable borrowing terms. Jia Finance does not require you to pledge your assets.
INTEREST-ONLY LOANS. These loan programs offer interest-only home loans on 30, 40-year fixed loans, 30-year fixed loans, 10/6 ARMs, 7/6 ARMs, and 5/1 ARMs. During the first 10 years of the loan, you will only pay the interest. This provides significant savings over the life of the loan. However, it’s important to keep in mind that you will not be paying down the principal balance during the interest-only period.
RECENT CREDIT EVENT LOANS. Recent credit events can make it challenging to secure a loan because many lenders view them as a red flag. However, we offer loan programs for borrowers with recent credit events including foreclosure, short sale, and bankruptcy. While we do offer options for as little as one day out from the credit event, loan terms typically improve the longer it has been, even in just a year or two.
MULTI-UNIT AND MIXED-USE LOANS. We offer a variety of loans specifically tailored to the needs of real estate investors who want to expand their portfolio mixed-use, and multi-family up to 8 unit properties. For mixed-use properties, we typically required commercial use be limited to 49% of the total square footage.
JIA FINANCE NON-QM LENDING PROCESS
STEP 1 ->
A mortgage loan originator (MLO) will be assigned to work with you and discuss best options for your funding.
STEP 2 ->
Either on your own, or with the help of the MLO, complete your loan application and with the best information available to you. This will help in qualifying loan quickly.
STEP 3 ->
Once the loan application is complete and with valid information, you can lock the interest rate for a period of 30, 45, or 60 days. This will ensure that no matter how market rates move, your interest rate will be set for that period.
STEP 4 ->
Your MLO or another representative will disclose fees and costs based on the loan information you provided (“loan estimate”, “LE”). For guidance, the costs and fees disclosed in the LE is broken down into sections for services what borrower can and cannot shop for. Typically, appraisal, credit report, tax monitoring are services borrowers cannot shop for. But, survey and title companies are services that the borrower can shop for best rates.
STEP 5 ->
a) The MLO and a processor will work with you on collecting required documents to verify the information provided in the loan application and required by the underwriting guidelines. As good practice, the MLO and processor will review the documents and communicate for any missing or incorrect information.
b) An appraisal will be ordered for the property.The appraisal form will disclose the property value and rental potential. As the borrower, you will have to begin title and home or hazard (and flood) insurance related work.
STEP 6 ->
Once the required documents are set, the loan is then submitted to underwriting where an underwriter reviews all the information on your loan file and makes a credit determination. It could be that further clarification and documentation are required, your MLO and processor will be in communication with you accordingly.
STEP 7 ->
Once the underwriting team gives the clear to close, you will receive a Closing Disclosure (“CD”) for your execution, and a closing specialist will reach out to schedule a closing date.
STEP 8 ->
At the closing site, you will sign all required documents with a notary. Soon after the loan will close and fund, to complete the purchase (or refinance) transaction of the property.
APPLY FOR YOUR NON-QM LOAN WITH JIA FINANCE
We make it possible to secure the loan you need to buy a house or property you have your eye on without all the stress, frustration, and red tape. Speak with our loan officer today to begin the application process for your Non-QM loan.
FAQ’S
Here are other frequently asked questions so you can better understand your options.
WHAT LEGAL PROTECTIONS DO QUALIFIED MORTGAGE LOANS OFFER?
Dodd-Frank offered lenders issuing QM mortgages protection from legal challenges in foreclosure proceedings and other litigation. With a QM mortgage, lenders have shown that they made sure you had the ability to repay your loan. This gives lenders legal protection from lawsuits that claim they didn’t verify a borrower’s ability to repay. However, if a borrower doesn’t believe a lender ensured they had the ability to repay, they can still challenge the lender in court.
HOW DO LENDERS VERIFY INCOME FOR NON-QM LOANS?
Non-QM loans offer flexibility for lenders to offer mortgages to people who don’t fit the criteria of QM loans, but lenders still need to do the work of verifying the information provided. Lenders must verify and document income reported from bank statements, P&L statements, written verification of employment forms (WVOE). This is the income used to calculate the DTI to qualify the loan.
WHAT IS THE BENEFIT OF APPLYING FOR A NON-QM MORTGAGE?
Non-QM mortgages allow borrowers that otherwise wouldn’t qualify for a mortgage to be eligible for a home loan. If your documenting income from non-traditional sources, this style of mortgage may be the right fit for you.