1.
Non Qualified Loan
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2.
Non-Qualified Mortgage Loan Guide for
Residential Property Buyers and Owners
There are two types of mortgages: qualified and
non-qualified. The difference is whether or not the
government agencies protect the lender against any
type of lawsuit against them should a borrower
become unable to afford their mortgage payments
and want to sue.
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3.
What is a Qualified Mortgage?
A “qualified” mortgage (QM) means that the
borrower meets certain requirements pertaining to
his ability to afford the loan at the time of
application. In this case, the lender would be
protected against any penalties regarding this loan
should the borrower default.
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4.
What is a Non-Qualified Loan?
A “non-qualified” loan (non-QM), on the other hand,
means that the borrower does not meet the
“qualified mortgage” guidelines and poses a higher
risk in terms of default. Basically, these borrowers
are those that do not fit into the conforming model,
yet still have the credentials to obtain a mortgage
from lenders willing to provide them. These loans
are available, yet the protection against being sued
by the borrower is not provided.
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5.
Qualified Mortgage Rules
Understanding what makes a qualified mortgage will
help you determine if you fall into the non-qualified
loan category. The requirements are as follows:
Debt ratio cannot exceed 43% no matter the
type of loan (FHA, VA, conventional)
Points and/or fees should not exceed 3% of the
loan amount
The loan cannot be interest only, have negative
amortization, or any other risky features
Verification of income is required (no stated
income or asset verification only)
Loan term must not exceed 30 years
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6.
If you do not meet all of these requirements, you
do not fall under the QM rules. This does not
mean you are automatically unable to get a loan
or that you are destined to have a high interest
rate and/or fees – it means you will have to go to
lender that offers a non-qualified loan.
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LENDER HOTLINE: 888-581-5008

7.
Going Beyond
Qualified Mortgage
Guidelines
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8.
The Qualified Mortgage guidelines make it difficult
for certain borrowers to obtain a loan. Whether you
have a credit score on the lower end of the spectrum
and the lender needs to charge higher fees in order
to make up for the risk or you cannot verify your
income because you are self-employed, but have
plenty of assets to afford the loan or your debt ratio
is higher than 43%, you may still qualify for a loan,
but be outside the QM guidelines. These are QM
loans that are being offered by some lenders.
Immediately following the housing crisis, loans for
borrowers in any of these predicaments was hard to
find, but they are more readily available today by a
variety of lenders.
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9.
Lenders basically look for compensating factors
when accepting loans outside of the realm of the QM
guidelines. For example, if you have a debt ratio that
exceeds 43%, yet you have 24 months of reserves
and a high credit score, you will likely qualify for a
loan, but won’t fall under the QM protection. Certain
lenders are willing to take that risk as you do not
pose the same level of risk as someone that has a
low credit score and very few reserves. This type of
borrower would be a higher risk, require a higher
interest rate and/or fees and be very likely to default
on their loan.
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LENDER HOTLINE: 888-581-5008

10.
Non-Qualified Does not Mean
Not Able to Pay
What needs to be stressed here is that a non-
qualified loan does not mean you cannot repay the
loan. The lender is still going to do due diligence in
evaluating your financial situation. They will not
provide loans to borrowers that do not demonstrate
the ability to repay the loan. The Ability to Repay
Rule, put into place by the Dodd-Frank Act, requires
lenders to ensure that borrowers can afford the loan.
This means:
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11.
Verifying income and/or assets
Verifying employment
Accurately calculating the debt to income
ratio
Evaluating credit history
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12.
Lenders are able to charge higher interest rates
and/or fees for loans that pose a slightly higher risk
than a Qualified Mortgage would allow, yet they
must make sure the payment is affordable. What
this means is the days of stated income and stated
asset loans are gone. Lenders need solid proof that
the borrower can afford the loan with slightly higher
rates and/or fees with ease. They are not supposed
to put borrowers in a difficult financial situation.
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LENDER HOTLINE: 888-581-5008

13.
The non-qualified loan is a great option for
borrowers in unique circumstances including:
Self-employed for less than 2 years
Self-employed and not showing a great amount
of income on tax returns
High debt ratio yet plenty of reserves to make
up for the debt ratio
Blemished credit due to unforeseen
circumstances during the downfall of the
economy
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14.
The non-QM loans are not meant to rip borrowers
off or provide them with a loan without the ability
to confirm its affordability. They are meant to be
an option for borrowers that do not fit the
conforming or even FHA/VA mold as many
borrowers do not fit it now. Non-QM did not
necessarily take the place of subprime loans; it
simply gives lenders options for borrowers that
obviously qualify for a mortgage yet are not
considered a good risk according to Fannie Mae or
Freddie Mac.
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LENDER HOTLINE: 888-581-5008

15.
Many lenders offer non-QM loans today, but they
are not all created equal. It pays to shop around
and see what each lender offers for your exact
circumstances. If you have leverage, such as many
months of reserves on hand, you have more
bargaining power than a borrower with mediocre
credit, a high debt ratio, and very few reserves.
Use your compensating factors to your advantage
in order to obtain the lowest rates and/or fees for
your mortgage.
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LENDER HOTLINE: 888-581-5008

16.
T O L E A R N M O R E
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C L IC K HE R E
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17.
Justin McHood is Americas Mortgage
Commentator and has been providing
Mortgage commentary for over 10 years.
INFORMATION PROVIDED BY:
Justin McHood
Mortgage Commentator
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18.
LEARN MORE ABOUT MORTGAGE COMMENTATOR:
MORTGAGECOMMENTATOR.COM
FACEBOOK.COM/MORTGAGECOMMENTATOR
@MORTGAGECOM_
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