Non-QM Underwriting Guidelines

December 3, 2020

The new economy built on gig-work and side hustles has many borrowers worried they can not get a loan. Fortunately, many lenders can make up their own rules and offer non QM loans that allow borrowers like you to the opportunity to own a home.  

This does not allow lenders free rein as they must still follow the Ability-to-Repay Rules that specify the requirements that every loan must meet. A lender can go above and beyond if they want to, but there are restrictions on who they can lend to.

Today we will discuss non-Qualified Guidelines and see how they compare to Qualified Mortgage Guidelines.

Qualified Mortgage Guidelines

Most lenders offer a Qualified Mortgage. This type of loan provides protection against litigation from borrowers in the event the borrower is unable to pay the mortgage.

REQUIREMENTS:

  • Points and fees on the loan cannot exceed 3% of the loan amount
  • The loan cannot have any type of negative amortization or interest only payments
  • The term may not exceed 30 years
  • The income used for qualifying must be verified with paystubs, W-2s, and/or tax returns

Not all borrowers are able to meet these requirements. For instance, a self-employed borrower who has only been working for themselves for six months will not have tax returns proving income. Those who have been self-employed for a while who have reported a loss on their income taxes may also have a difficult time proving they can pay a mortgage.

This is where non-QM loans come into play.

Non QM Guidelines

Non-qualified loans are different, and their requirements can vary from one lender to the next. However, every non-QM loan must still meet the following Ability to Repay requirements:

  • Proof of income to support the payments. W2’s and tax returns are not necessary if you can provide bank statements with consistent deposits of your regular income
  • Proof of assets that can be used to support the payment or proof of employment
  • Lender specific credit score requirements
  • Lender specific down-payment
  • The lender is required to use the fully indexed interest rate for qualifying, even if you take an adjustable mortgage with a lower introductory rate
  • The borrower must meet the required waiting period after foreclosure or bankruptcy.

The lender must also make sure that you are able to pay:

  • The monthly mortgage payment on this loan or any other liens without issue
  • Real estate taxes and homeowner’s insurance
  • Current debts including child support and alimony
  • Your current monthly bills

These are mere guidelines and will vary from one lender to another.

Non-Qualified loan applicants are subject to the same process as other borrowers and must provide identifying information including name, address, social security number, and financial information.

You must provide proof for any conditions determined by the underwriter to ensure you have met the Ability to Repay rule.

If you know you will not meet the requirements for a traditional mortgage, ask your lender about the possibility of non QM mortgage.







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