Buying a home is part of the American dream, but what if you don’t qualify through traditional means? This is an issue that self-employed and other non-W2 workers often face since their proof of income and employment differs from what lenders typically require.
The good news is that those who don’t meet the criteria for a qualified mortgage can be offered a non-qualified mortgage instead. Let’s explore the non-QM loan option and see if this is the right choice in your situation.
Non-qualified loans are designed to help homebuyers who don’t meet the standard requirements to qualify for a mortgage. They feature more flexible eligibility requirements on DTI, credit scores, and loan amounts.
To better understand what a non-qualifying loan is, let's review the list of requirements for a traditional mortgage:
Income. You must provide pay stubs, W2s, and tax returns to verify your income.
DTI. This is the amount of your monthly income that is paid toward existing debts. Your debt to income ratio should be 43% or lower.
Fees. Your loan fees and points can’t be more than 3% of the loan amount.
Term. The loan term must be 30 years or less.
If you can’t provide the aforementioned things, a non-qualifying mortgage is worth exploring. It should be noted that non-QM loans are not government-backed or part of Fannie Mae or Freddie Mac.
Non-QM loans make mortgages more accessible to a broader market. They also require less formal documentation compared to other types of loans. You don’t need to submit W2s, tax returns, or employment verifications. Bank statements and a list of assets are often enough for loan approval.
Minimum credit scores for non-QM loans can be up to 100 points lower than qualified mortgages and feature more flexible terms, which are not available in most qualified mortgages. Even a 40-year loan term!
A non-QM loan is a good option when you have a stable income that allows you to make regular, on-time mortgage payments but can’t meet a qualifying mortgage requirement. This is often the case with:
Real estate agents
Small business owners
Borrowers with high assets and low income
Borrowers with high DTI
Borrowers with low credit scores
There has been a misconception that Non-QM loans are bad loans and borrowers should avoid them. The truth is, similar to qualified mortgages, today’s non-QM loans have their own set of guidelines. The lending process is the same apart from the loan documents needed.
Because of the financial risk involved in providing loans that are not backed by federal government programs, non-QM loans are less widely available. And just like any other loan, non-QM loans have their pros and cons.
If you’d like to learn more about non-QM loans or explore other home financing options, please contact us! Many options and means are available to help you qualify for a mortgage.
This licensee is performing acts for which a real estate and mortgage license or consumer loan license is required. C2 Financial Corporation is licensed by the California Bureau of Real Estate, Broker # 01821025; Washington Office Department of Financial Institutions, DFI# CL-135622; NMLS# 135622 Loan approval is not guaranteed and is subject to lender review of information. All loan approvals are conditional and all conditions must be met by borrower. Loan is only approved when lender has issued approval in writing and is subject to the Lender conditions. Specified rates may not be available for all borrowers. Rate subject to change with market conditions. C2 Financial Corporation is an Equal Opportunity Mortgage Broker/Lender. The services referred to herein are not available to persons located outside the state of California and Washington.
As a broker, C2 Financial Corporation is NOT approved by the FHA or HUD, but C2 Financial Corporation is allowed to originate FHA loans based on their relationships with FHA approved lenders.
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Office Phone: (310) 890-6459
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