What is a Non-Qualified loan?
A Non-Qualified loan or Non-QM loan is a loan program designed to help people who are unable to provide conventional documentation for a loan.
All mortgages and loans share certain requirements as far as documentation goes. You will be required to provide proof of income, proof of residence, tax documentation, etc. But if a person is unable to provide this documentation for a genuine reason or simply doesn’t have such documentation, they will not be qualified for most loans altogether.
This is where Non-QM loans become very important. They help people who are unable to provide conventional documents, qualify for home loans by means of accepting alternative documentation for processing the loans. Non-QM loans are also very suited for people who experience instances of late payments or credit problems as isolated financial issues.
How do Non-Qualified work?
Working with Non-Qualified loans requires lenders to take a broader picture in focus to the circumstances of the borrower. These loans have different guidelines that cater to a variety of situations that the borrower might be facing. For example, traditional mortgages rely on credit scores and debt to income ratios when gauging the ability of someone to repay the loan, with Non-QM loans, however, use a different calculation. They use “Ability to Repay” or ATR to make the same assessment.
What are the benefits of Non-Qualified loans?
The benefits of Non-Qualified loans are:
- Non-QM loans have flexibility for underwriting
- They accept lower credit scores compared to conventional loans
- Documentation requirement depends on the unique case
- Different types of residential properties can be qualified
- Interest rates are available in fixed and variable
- Loan limits are higher in Non-QM loans
- Down payments are lower than conventional loans
- Rent from properties can be qualified as a form of income
- Private Mortgage Insurance (PMI) is not required
- Closing in Non-QM loans is faster than traditional loans
- Equity in Non-QM loans is higher
What is the eligibility for Non-Qualified loans?
When it comes to requirements of loan approval, Non-QM loans are the most flexible. Since they cater to people of varying situations and backgrounds, the requirements are not fixed. They do still require the same type of information as other loans however, the documentation provided for these loans for approval purposes, is dependent on what documents a borrower can present to meet those requirements. Loan officers helping people qualify for these loans need to have a very broad understanding of the documentation to best judge how they can help the borrower meet the approval requirements.