Unleashing Homeownership Potential with Non-Qualifying Mortgages

Non-Qualifying Mortgages (Non-QMs), ideal for borrowers with unique income situations or credit histories not quite up to par, offer a pathway to realize your dream of owning a home without the traditional lending roadblocks. If you're a first-time buyer, a self-employed individual, or a real estate investor, non-QM loans can help you make a confident move towards your financial aspirations. In this guide provided by CrossCountry Mortgage, we'll detail how you can utilize non-QM loans effectively.

Understanding Non-Qualifying Mortgages (Non-QMs) Simply put, a Non-Qualifying Mortgage is a home loan that doesn't adhere to standard consumer protection criteria as set by the Consumer Financial Protection Bureau. If your debt-to-income (DTI) ratio isn't conducive to a conventional mortgage, your income is inconsistent, or you fail to meet the income verification requirements under the Dodd-Frank Act, you might not be eligible for a standard mortgage. CoreLogic's recent data identifies three key reasons for borrowers to consider non-QM loans:

1. Limited documentation
2. DTI ratio exceeding 43%
3. Interest-only loans

What Does a Qualifying Mortgage Entail? To grasp what a non-qualifying mortgage entails, let's overview the requirements for a qualifying mortgage:

• The loan duration should not exceed 30 years
• The total charges and points must be 3% or less of the loan amount
• The lender needs to verify and document the borrower's assets and income
• The loan can't have negative amortization, be interest-only, or have a balloon payment
• The borrower must have a DTI ratio of 43% or less, unless approved by the agency's Automated Underwriting System (AUS)

These prerequisites, known as the ability-to-repay (ATR) rules, aim to prevent borrowers from accepting a loan they can't afford, hence mitigating foreclosure risks. Non-QM loans can be particularly beneficial for borrowers who find it challenging to validate their income or employment due to irregular earnings.

Applying for a Non-QM Loan with CrossCountry Mortgage When applying for a non-QM loan with CrossCountry Mortgage, we will evaluate your credit, income, and assets. While we must still ensure your ability to repay the loan, we might accept alternative documents not usually permitted for a qualified mortgage, such as bank statements or profit-and-loss records.

Contrasting Qualified and Non-Qualified Mortgages When applying for a standard mortgage, the lender will require documents confirming the income, assets, and current debt obligations you declare. For a non-QM loan, CrossCountry Mortgage may approve alternate income proofs instead of paystubs and W-2 forms.

Who is Eligible for a Non-QM Loan? Non-QM loans are intended to offer individuals who wouldn't typically meet standard lending criteria a means to finance a new home. These include:

• Individuals unable to provide sufficient financial or employment history documentation.
• Individuals with imperfect credit histories.
• Individuals carrying significant debt.
• Retirees with considerable savings but limited income.
• Non-U.S. citizens lacking the necessary credit history or tax records for a standard mortgage.

The Non-QM Loan vs. Subprime Loans Debate Subprime loans have carried a negative stigma since the 2008 housing crisis. Non-QM loans are increasingly prevalent in today's mortgage market, yet they are often incorrectly associated with subprime loans.

Non-QM loans are not subprime loans, although both deviate from the standard underwriting guidelines of qualified mortgages. Importantly, non-QM loans adhere to the Ability-to-Repay (ATR) rule.

The ATR rule mandates lenders to reasonably ascertain a borrower's ability to repay a residential mortgage loan according to its terms, something not required with subprime loans.

Enhancing Your Chances of Securing a Qualified Mortgage Non-QM loans typically come with higher fees and interest rates than standard mortgages. If this poses a problem, you might want to take steps to increase your chances of securing a qualified mortgage.

• Improve your credit score
• Find a co-signer
• Increase your down payment
• Seek additional income streams
• Utilize rental income

Need More Information? Selecting the right loan can save you significant money in the long run. If you're ready to move forward or need more information, reach out to a CrossCountry Mortgage Advisor today. Visit our blog for more helpful homeowner tips and resources.