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Non-Qualified Mortgages Explained; Good for Real Estate!

brick-wall-with-vinesWHAT IS A NON-QM LOAN?

After the 2008 meltdown, the Dodd-Frank Bill imposed minimum standards for mortgages and created a “Qualified Mortgage” (QM) definition.

QM loans are almost all of the mortgages we see underwritten today (Fannie, Freddie, FHA, VA, Jumbo), and they include certain safeguards focusing on conservative lending standards and a borrower’s ability to repay.

Banks and Mortgage lenders comply with QM rules b/c they give lenders liability protection and allow them to make loans with less fear of buybacks and lawsuits (something we say a lot after the 2008 meltdown).

Over the last several years, Non-QM loans have become more and more prominent. But, Non-QM loans are not inherently riskier and we are not returning to the crazy days of subprime lending.

Non-QM loans are simply loans that do not comply with all of the complex Qualified Mortgage rules.

Examples of Non-QM loans include the following:

(1) loans with 40-year amortizations;
(2) interest only loans;
(3) loans that use bank statement deposits for income verification;
(4) jumbo loans with debt ratios over 43%; and
(5) loans that use asset amortization schedules for income verification.

WHY NON-QM LOANS ARE NOT HIGH RISK

Non-QM loans have now been around for years and guidelines are not getting progressively looser.

They are different from pre-2008 subprime loans b/c lenders demand much larger down payments now (over 20% in most cases) and/or other compensating factors like perfect credit or substantial assets.

We will not see “stated income/stated asset” loans with no down payment requirements like we saw prior to 2008.

WHY NON-QM LOANS ARE GOOD FOR REAL ESTATE

Non-QM loans simply provide alternative avenues for otherwise qualified buyers to finance residential real estate.

An example is a self-employed business owner with great credit and ample assets but limited income on his tax returns for various reasons. Individuals like this can take advantage of the bank statement program.

Another example is the person with limited income on paper and enough assets to easily pay cash for a property, but who wants to finance a purchase to avoid liquidating assets. This person would be a great candidate for an asset amortization loan.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646