What is a Non-QM Loan?
Non-QM (or Non-Qualified) mortgage products allow borrowers to qualify for a mortgage using alternative income solutions. These programs typically are designed for self-employed business owners, real estate investors, foreign nationals, or individuals that experienced a recent credit event, such as bankruptcy of foreclosure. Although Non-QM products come paired with slightly higher interest rates and closing costs than standard conventional loan programs, they do offer affordable solutions to prospective homeowners, who once had no clear path to purchasing a home.
It’s also important to note that Non-QM loans are very different from the toxic stated income 100% financing subprime mortgage products that lead to the 2008 housing collapse. Owner occupied Non-QM loans must conform to all of the CFPB’s guidelines including ability to repay and TRID requirements.
Below is a breakdown of various Non-QM programs, how they work, and who they’re for.
Full Doc Program
Designed for individuals with recent credit events or debt to income ratios that don’t get accepted by Fannie or Freddie automated underwriting systems, Full Doc Non-QM programs require the same income and asset documentation as a conventional loan with slightly looser underwriting requirements. These loans are perfect for individuals in “one-off situations” and don’t qualify for a standard conventional or Jumbo loan due to a minor technicality.
Bank Statements Program
Created with self-employed borrowers in mind, a Non-QM Bank Statement program allows borrowers to qualify for a loan using Bank Statements rather than standard income documentation. This is perfect for business owners that do not want to use tax returns for qualification purposes. There are personal and business bank statement options available and down payment options start as low as 10%.
P&L (Profit & Loss) Program
One step away from the Bank Statement loan is Profit and Loss (or P&L loan) – this loan allows self-employed borrowers to qualify for a loan using just a profit and loss prepared by a licensed tax preparer or CPA. This option starts with down payment options as low as 20%
Asset Utilization Program
Individuals with high net worth often retire or experience inconsistent income with massive gaps of employment between projects. Asset utilization programs allow assets to replace income when proving ability to repay. Minimum assets required to qualify typically start at, at least, 1.5x the loan amount or $1,000,000. Underwriters can be found using 100% of cash or money market accounts, 90% of public securities, and 70% of retirement accounts when determining the total available assets.
DSCR (Debt Service Coverage Ratio) Program
The Debt Service Coverage Ratio (of DSCR) program is a real estate investors best friend. DSCR loan programs do not require a borrower’s income documentation at all. Instead, they rely on the proposed monthly rental income of the subject property and a heavier down payment starting at 20% (but usually no less than 25%). DSCR borrowers are required to own a primary residence and are able to vest title in their own name or an LLC.
Foreign National Program
For borrowers living overseas, financing a home in the states once felt out of reach, but now with Foreign National Non-QM programs things are a whole lot easier. Foreign Nationals now have two options to qualify – Full Doc and DSCR. The DSCR option is the same as it is for a US Citizen or Green Card holder, and the Full Doc option requires lets from an overseas employer or CPA documenting the past two year income along with year to date earning. In addition Foreign Nationals are also required to provide credit reference letters from overseas financial institutions in lieu of a credit report.
If you feel one of these programs might be a fit for you or someone you know, please reach out and one of our loan officers will be happy to help