Looking for a mortgage, but have a unique situation? Finding a mortgage can be frustrating if you don’t fit within the Qualified Mortgage (QM) box based on your income, debt, or other factors.
These QM options can often leave many people feeling like they’ll never be able to buy a home because they don’t meet the strict QM lending requirements.
The good news is that there are alternative mortgage options available! If you are self-employed, an investor, or are just looking for alternatives that fit your unique needs, you may be able to find a financing option by using a Non-Qualified Mortgage (Non-QM) instead.
If you’re interested in discussing your mortgage options with someone, reach out to one of our Senior Loan Advisors here!
What is a QM Mortgage?
The Consumer Financial Protection Bureau (CFPB) sets lending requirements for mortgage lenders. If a mortgage falls within these requirements, that mortgage is considered “qualified”. QM mortgages cannot offer negative amortization, interest-only terms, or loan terms longer than 30 years.
They also have more strict requirements of things like Debt-to-Income (DTI). These mortgages often offer lower interest rates because they are considered “less risky” to lenders.
What is a Non-QM Mortgage?
Non-QM mortgages don’t have to fit within the CFPB’s lending requirements, which means they are able to offer expanded guidelines to qualify more borrowers. Non-QM mortgage options can offer longer and unique loan terms, alternate methods of income verification, higher DTI ratios, and more to help borrowers get approved for a home loan.
While Non-QM mortgage rates are typically higher, they help increase access to homeownership and provide loan options that may work better for some borrowers.
Who Benefits From a Non-QM Mortgage?
One of the downsides of being self-employed and applying for a QM loan is that two years of tax return information is typically required to calculate your income. Many self-employed entrepreneurs use the tax credits and business write-offs available to them to lower their overall income on these documents and pay less in taxes.
Instead of having to just rely on tax returns to document income, a Non-QM lender like Newfi can use alternative ways to verify all of your income. This is a great option for small business owners, contract workers, or anyone working a side hustle.
Here are a few ways that self-employed borrowers can verify their income for a Non-QM mortgage with Newfi:
- Business or Personal Bank Statements with qualified deposits from the last 1 or 2 years
- IRS 1099 forms from the last 1 or 2 years
- A letter from your CPA verifying your qualified gross receipts
- Combine any of these options with W-2 forms or each other
Borrowers With A Large Asset Portfolio:
The stock market is where many people invest and grow their wealth, however, it can be hard to leverage the wealth in stocks, bonds, or other assets to purchase a home.
Some Non-QM mortgages allow for asset utilization or asset depletion, to help individuals leverage their investments and net worth without liquidating their assets.
Newfi will divide the total value of a borrower’s assets by 84 months to establish their “monthly income” and use this amount as the income documentation needed to qualify.
This can be beneficial because borrowers don’t need to liquidate stocks, investments, or other properties to obtain a mortgage.
Real Estate Investors:
Debt Service Coverage Ratio (DSCR) Cash Flow loans can be used when purchasing a property that is going to be solely for investment purposes. These types of loans are also known as Business Purpose or Private Lender loans.
Instead of QM investment property financing, many investors turn to DSCR Cash Flow loans to maximize their monthly cash flow, close quickly, and skip the headache of documenting all the properties in their portfolios.
The benefit of using a Non-QM home loan over a QM mortgage is that DSCR Cash Flow loans only focus on the property that you are financing when applying.
We don’t ask for robust documentation on your other investment properties that would typically slow the process down. Instead, we calculate your estimated market rent you would generate on your investment property and use that assumed income to qualify you for the investment property loan.
This eliminates the need to document any income, employment, or personal debt information.
Borrowers Who Want Lower Monthly Payments:
Is the pressure of owning a home overwhelming? Are you worried about affording your mortgage payments? Non-QM mortgage options can offer different loan terms to lower monthly payment obligations when compared to a traditional QM 30-year home loan.
Newfi offers a 40-Year Interest-Only mortgage where the borrower maintains the same interest rate throughout the life of the loan, and only makes payments to made on the interest during the first 10 years. After ten years the payment changes and they pay principal and interest on the loan.
While the monthly payments change at the ten-year mark the rate stays the same for the life of the loan.
This is a great option for people who are looking to minimize monthly spending while still having access to homeownership and the ability to capitalize on home appreciation.
Is A Non-QM Mortgage Right for Me?
Purchasing a home and choosing the right mortgage is a huge decision. It is important to look at all options when starting the home buying process. If you work for yourself, have a net worth that is primarily made up of assets, are looking to invest in real estate, or just would like smaller monthly payments; then a Non-QM mortgage may be right for you.
Newfi offers both QM and Non-QM mortgage options. We recommend speaking to a Senior Loan Advisor about your financial situation to decide what the best mortgage is for you, commitment-free.
If you are ready to start your home buying journey and are interested in working with Newfi to finance your future, get a quote or talk to one of our loan advisors today at https://newfi.com/home-buying/
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