For many, the American Dream starts at home. But prohibitive mortgage requirements can make it inaccessible. Fortunately, non-QM loans are great alternatives. But what is a non-QM loan? Non-QM loans (Non-Qualified Mortgage Loans) are designed for homebuyers who cannot meet the requirements for a qualifying mortgage. Several situations can put someone in this position. Maybe you’re self-employed or a retiree. But living and succeeding on your terms shouldn’t disqualify you from making this dream a reality.
At mbanc, we have been helping self-made people like you finance their short-term rental investing journey to live out their American Dream for years. Read our blog to learn more about this financial product and how it can help you.
What is a Non-QM Loan?
Non-QM loans are mortgages that do not meet the Consumer Financial Protection Bureau’s (CFPB) requirements.
That requirement is, essentially, meeting the CFPB’s “ability to repay” rule. This rule stipulates that lenders must closely assess your finances and establish loan terms based on how likely you will repay this loan. To be eligible for traditional mortgages, you must:
- Have verifiable income from pay stubs, W-2s, and tax returns.
- Meet strict credit history requirements.
- Have a debt-to-income ratio (DTI) of 43% or less.
- Be OK with points and fees that cannot exceed 3% of the loan amount.
- Be OK with a loan term of 30 years or less.
- Be OK with points and fees on your loan not exceeding 3%.
These requirements help lenders determine if you can repay the loan. But this archaic vetting process puts people who have succeeded on their terms at a disadvantage. Non-QM loans are intended for those who cannot meet the strict criteria.
“If you can’t meet this criteria, conventional mortgages are likely not an option. Which is unfair to self-made people who have succeeded on their terms. We don’t believe you should be punished for succeeding on your terms. We celebrate and partner with borrowers like you to help you reach your goals.” – Desh Weragoda, mbanc CTO.
What Are the Benefits of Non-QM Loans?
The benefits of these mortgages are crucial when asking, What is a non-QM loan? These mortgages offer a range of benefits to borrowers with an unconventional income, such as:
- The ability to use alternative documentation to verify income (e.g. Personal or Business Bank Statements, 1099s, Rental Income and asset qualifiers)
- Practical credit requirements
- Products available to foreign nationals
- The ability to qualify with rental income
- Interest-only options
- Flexible DTI limits
- Reserves requirements
- Flexible terms
- A fast and easy application process
Who Should Get a Non-QM Loan?
Understanding who this financial product is ideal for is crucial to answering, What is a non-QM loan?
A non-qm loan is excellent for someone who found their dream home but was denied traditional financing, those living off investments, those who have high assets and low income, and those who want to refinance a conventional loan.
Most commonly, however, non-qm loans are a great option for:
- Self-employed borrowers: Non-qm loans can offer things like bank statement mortgages with no need for W-2s, and you can qualify based on deposits for 12 to 24 months of personal or business bank statements if your tax documents don’t adequately reflect your income.
- Borrowers investing in long- and short-term rental properties: Non-QM loans can be a good option for those who own over 10 financed investment properties. Options like debt-service coverage ratio (DSCR) loans are great for investors, too, because if the rent on the home covers the monthly mortgage payment, you don’t need any other income to qualify.
- Foreign nationals: If you are a citizen of another country who lives in the U.S. for brief periods, whether for work or a holiday, these non-QM loans can be a good option. These loans don’t require proof of income, credit, or an SSN.
- Those looking for an interest-only mortgage: Non-QM loans are available with interest-only options, which can be great for those who have inconsistent income because they allow for lower payments during periods when you earn less. Short-term rental investors can also benefit because they will have time to get the property up and running before making mortgage payments.
Self-Employed Mortgage Solutions for Real Estate Investing
Living a modern, unconventional life and succeeding on your terms shouldn’t stand between you and the American Dream. But many traditional lenders impose prohibitive lending requirements that can make borrowers feel the opposite. At mbanc, we understand that achieving the American Dream can often require shucking tradition, which is why we celebrate nontraditional borrowers like you.