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There are two types of mortgages:
* 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.
What is a Non-Qualified Loan?
A “non-qualified” loan (non-QM), means that the borrower does not meet the “qualified mortgage” guidelines and poses a higher risk in terms of default.
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.
Qualified Mortgage Rules
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
Non-Qualified Does not Mean Not Able to Pay
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:
Verifying income and/or assets
Accurately calculating the debt to income ratio
Evaluating credit history
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