California Mortgage News

What is a Non-QM Loan?

First we need to answer what a qualified mortgage is. 

A qualified mortgage must meet Fannie Mae or Freddie Mac guidelines and requires lenders to qualify the borrower’s liabilities, income and monthly debt payments.

.

 Non QM Loans

Non QM Loans are loans that do not conform to Fannie Mae or Freddie Mac lending guidelines.  Non-QM loans are easier to qualify and provide for non-traditional forms of income. The fees and mortgage rates for non-qualified mortgage lenders are slightly higher than qualified mortgage lenders. This is because the protection that qualified mortgage loans offer is not available to non-qualified mortgage lenders. Because non-qualified lenders cannot sell their loans to Freddie Mac and Fannie Mae in the open secondary market, they must be sold to other private investors.

Non QM Loans help in the following scenarios:

  • Self Employed
  • Income Sourced from Assets or Bank Statements with No Tax Returns
  • Recent Bankruptcy
  • Recent Foreclosure or Short Sale
  • Deed in Lieu of Foreclosure
  • Bad Credit History
  • Outstanding Collection Accounts

Non Qualified Mortgage Borrowers

If you have experienced a bankruptcy and/or foreclosure, then you will have to wait for a certain period to qualify for a mortgage via qualified mortgage loan. There is a minimum waiting period requirement after bankruptcy, short sale and foreclosure for qualified mortgage loan, but that is not the case with non-qualified mortgage loan. If you are unable to meet the minimum waiting period requirement after bankruptcy, short sale and foreclosure, you cannot qualify with a qualified mortgage loan, but you can qualify with a non-qualified mortgage loan. For non-qualified mortgage loans, there is no minimum waiting period after a foreclosure or bankruptcy. Non-qualified mortgage loans can help home buyers qualify for a mortgage even after they suffer a bankruptcy or foreclosure. With non-qualified mortgage loans; no credit, bad credit, foreclosure, bankruptcy, deed in lieu of foreclosure, history of bad payments, and outstanding collection accounts aren’t an issue to qualify for a home loan. One important thing that is required with non-QM loan is timely payment history of last 12 months. Lenders will need to see this in order to qualify you for a loan.

Charge off accounts and old collections with credit balance don’t have to be paid off by mortgage borrowers. Medical collections are not included in debt-to-income ratio calculations. Medical collections are treated differently by mortgage lenders. As long as you have documented income and IRS can verify it, you can again become a homeowner via non-qualified mortgage loan.

Bank Statement Mortgage Loans

After the real estate crisis of 2008, stated income loans and no doc loans became extinct which caused self employed borrowers several problems and made it difficult for them to qualify for a mortgage. But, self employed borrowers don’t have to worry anymore as the bank statement loans are back to help them qualify for a mortgage with a Non QM – Bank Statement Portfolio Loan.

Conclusion

If you have had difficulty qualifying for a mortgage under traditional qualified mortgage guidelines, then a Non QM loan may be just what you need. 
Should you have any questions on your specific loan scenario, please give us a call or email and we will be happy to review with you.                                      
1st Los Angeles Mortgage:   (888) 525-6267   /   info@1stlamortgage.com

 



Posted by Michael Magness on October 16th, 2018 9:34 PM

The Different Types of Mortgage Loans - Explained

There are many different types of mortgages available to home buyers. We have boiled it all down to the following options and categories.

 

Option 1: Fixed vs. Adjustable Rate

As a borrower, one of your first choices is whether you want a fixed-rate or an adjustable-rate mortgage loan. All loans fit into one of these two categories, or a combination "hybrid" category. Here's the primary difference between the two types:

  • Fixed-rate mortgage loans have the same interest rate for the entire repayment term. Because of this, the size of your monthly payment will stay the same, month after month, and year after year. It will never change. This is true even for long-term financing options, such as the 30-year fixed-rate loan. It has the same interest rate, and the same monthly payment, for the entire term.

     

  • Adjustable-rate mortgage loans (ARMs) have an interest rate that will change or "adjust" from time to time. Typically, the rate on an ARM will change every year after an initial period of remaining fixed. It is therefore referred to as a "hybrid" product. A hybrid ARM loan is one that starts off with a fixed or unchanging interest rate, before switching over to an adjustable rate. For instance, the 5/1 ARM loan carries a fixed rate of interest for the first five years, after which it begins to adjust every one year, or annually. That's what the 5 and the 1 signify in the name.

 

Pros and cons: adjustable versus fixed-rate mortgages

As you might imagine, both of these types of mortgages have certain pros and cons associated with them. Use the link above for a side-by-side comparison of these pros and cons. Here they are in a nutshell: The ARM loan starts off with a lower rate than the fixed type of loan, but it has the uncertainty of adjustments later on. With an adjustable mortgage product, the rate and monthly payments can rise over time. The primary benefit of a fixed loan is that the rate and monthly payments never change. But you will pay for that stability through higher interest charges, when compared to the initial rate of an ARM.

Option 2: Government-Insured vs. Conventional Loans

So you'll have to choose between a fixed and adjustable-rate type of mortgage, as explained in the previous section. But there are other choices as well. You'll also have to decide whether you want to use a government-insured home loan (such as FHA or VA), or a conventional "regular" type of loan. The differences between these two mortgage types are covered below.

A conventional home loan is one that is not insured or guaranteed by the federal government in any way. This distinguishes it from the three government-backed mortgage types explained below (FHA, VA and USDA).

Government-insured home loans include the following:

FHA Loans

The Federal Housing Administration (FHA) mortgage insurance program is managed by the Department of Housing and Urban Development (HUD), which is a department of the federal government. FHA loans are available to all types of borrowers, not just first-time buyers. The government insures the lender against losses that might result from borrower default. Advantage: This program allows you to make a down payment as low as 3.5% of the purchase price. Disadvantage: You'll have to pay for mortgage insurance, which will increase the size of your monthly payments.

VA Loans

The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families. Similar to the FHA program, these types of mortgages are guaranteed by the federal government. This means the VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program (and it's a big one) is that borrowers can receive 100% financing for the purchase of a home. That means no down payment whatsoever.

USDA / RHS Loans

The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to "rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing." Income must be no higher than 115% of the adjusted area median income [AMI]. The AMI varies by county. See the link below for details.

Combining: It's important to note that borrowers can combine the types of mortgage types explained above. For example, you might choose an FHA loan with a fixed interest rate, or a conventional home loan with an adjustable rate (ARM).

Option 3: Jumbo vs. Conforming Loan

There is another distinction that needs to be made, and it's based on the size of the loan. Depending on the amount you are trying to borrow, you might fall into either the jumbo or conforming category. Here's the difference between these two mortgage types.

  • A conforming loan is one that meets the underwriting guidelines of Fannie Mae or Freddie Mac, particularly where size is concerned. Fannie and Freddie are the two government-controlled corporations that purchase and sell mortgage-backed securities (MBS). Simply put, they buy loans from the lenders who generate them, and then sell them to investors via Wall Street. A conforming loan falls within their maximum size limits, and otherwise "conforms" to pre-established criteria.

     

  • A jumbo loan, on the other hand, exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. This type of mortgage represents a higher risk for the lender, mainly due to its size. As a result, jumbo borrowers typically must have excellent credit and larger down payments, when compared to conforming loans. Interest rates are generally higher with the jumbo products, as well.

 

Option 4:  Non Qualified Mortgage (Non QM Loan)

Non-QM loan can help borrowers who have had credit issues in the past such as foreclosures, bankruptcy, late payments or other isolated credit issues. Non-QM loans also have underwriting guidelines that are different than the typical conventional or government type loans. These guidelines allow the lender to look at the entire loan picture for a borrower and not just their credit score and government underwriting matrices (DU or LP).

 
This explains the different types of mortgage loans available in 2018. But it only provides a brief overview of each type.  Education is the key to making smart decisions, as a home buyer or mortgage shopper.  Give us a call when you are ready to review your options.  We will review your scenario, give you detailed information, and provide options that meet your financial goals and budget. 

1st Los Angeles Mortgage:  (888) 525-6267
Posted by Michael Magness on September 13th, 2018 8:51 PM

     

Before you go shopping for a new home, the first thing you will want to do is review your credit profile for any inaccurate information.


We offer our clients a free credit review
with a tri-merge credit report from the three main credit bureaus, Experian, Equifax, and TransUnion, along with credit scores.   
Call us at 888 525-6267 or visit us at
www.1stlamortgage.com

 



Free annual credit reports

  • Federal law requires each of the three nationwide consumer credit reporting companies - Equifax, Experian and TransUnion - to give you a free credit report every 12 months if you ask for it. They also make it easy to accomplish many credit-related tasks right from your computer. You may request at: www.annualcreditreport.com

 Your credit reports matter.

  • Credit reports may affect your mortgage rates, credit card approvals, apartment requests, or even your job application.
  • Reviewing credit reports helps you catch signs of identity theft early.

 
Review your credit report
What should I look for when I review my credit report?

  • Make sure that you recognize the information on your credit report including your personally identifiable information, such as names, addresses, Social Security Number, accounts and loans. Then check that the other information on your credit report is accurate and complete. If you find information that you believe does not belong to you or is not correct, contact the business that issued the account or the credit reporting company that issued the report.

Filing a dispute
What should I do if I find information that is inaccurate on my credit report?

Federal law allows you to dispute inaccurate information on your credit report. There is no fee for filing a dispute. You may submit your dispute to the business who provided the information to the credit reporting company and/or to the credit reporting company who included the information on your credit report.

 The Federal Trade Commission's website has information about how to dispute errors on credit reports, and the Consumer Financial Protection Bureau's website provides additional guidance about disputing information on credit reports.

How does the dispute process work?

If you submit a dispute to a nationwide consumer credit reporting company, the company may make changes to your credit report based on the documents and information you provided. Otherwise, they will contact the business reporting the disputed information, supply them all relevant information and any documents you provide with your dispute, instruct them to investigate your dispute, and:

  • Review all information you provided about your dispute
  • Verify the accuracy of the information they are reporting to the credit reporting company
  • Provide the credit reporting company with a response to your dispute, including any changes to the information reported
  • Update their records and systems as necessary
  • The credit reporting company will then notify you of the results of the investigation

If you submit a dispute with a business, they will conduct an investigation and will send you the results of the investigation directly. They will notify the credit reporting companies of any changes that need to be made to the information as a result of the investigation.

If a dispute results in a change to your credit report, you will have up to 12 months to order a second free report through AnnualCreditReport.com in order to review the changes.

How do I submit my dispute?

To submit a dispute to a credit reporting company, contact the credit reporting company who has the inaccurate information on your credit report. You may submit a dispute with each of the credit reporting companies over the internet or by mail.

Online:

  • Equifax - www.equifax.com/CreditReportAssistance
  • Experian - www.experian.com/acrdispute
  • TransUnion - https://dispute.transunion.com

 Mail:
  • Equifax
  • P.O. Box 740256
  • Atlanta, GA 30374-0256
  • Experian
  • P.O. Box 9701
  • Allen, TX 75013
  • TransUnion
  • P.O. Box 2000
  • Chester, PA 19016

You may also submit documents in support of your dispute. Documents may be uploaded for online disputes or submitted by mail. When mailing documents, please only submit copies of documents and not originals. Documents will not be returned to you following the investigation.

To submit a dispute with a business:
  • Contact the business directly. The contact information for that business should be included on your credit report or monthly billing statement.

The Federal Trade Commission's website has more information on correcting your credit report, and the Consumer Financial Protection Bureau's website also provides additional information on disputing information on your credit report as well.


What information do I need to provide when submitting a dispute?

Types of information you should be prepared with:

  • Your full name, including middle initial and suffix, such as Jr., Sr., II, III
  • Social Security Number
  • Date of birth
  • Current address
  • All addresses where you have lived during the past two years


Depending on how you submit your dispute (through the internet or by mail), you may also be asked to provide the following additional information:

  • Email address
  • A copy of a government issued identification card, such as a driver's license or state ID card
  • A copy of a utility bill, bank or insurance statement

You should list each item on your credit report that you believe is inaccurate, including the creditor name, the account number and the specific reason you feel the information is incorrect.

You may also submit documents to support your dispute. Depending on the type of information disputed, the following documents may be helpful in resolving your dispute:

  • Police reports or an FTC Identity Theft Report, showing that an account was the result of identity theft
  • Bankruptcy schedules showing that an account was included in or discharged in bankruptcy
  • Letters from creditors showing how an account should be corrected
  • Student loan disability letters showing that a student loan has been discharged due to disability
  • Cancelled checks showing that a collection account has been paid
  • Court documents regarding public records

How long will it take to complete the investigation??
You will need to allow up to 30 to 45 days for the investigation of your dispute to be completed by the credit reporting companies.

The Consumer Financial Protection Bureau has additional information regarding the 
length of a dispute investigation.

What steps can I take if I do not agree with the dispute investigation results??
If you still believe that the information on your credit report is not accurate following your review of the investigation results from the credit reporting company, you have several options:

  • You may contact the creditor that reported the information to the credit reporting company and dispute it directly with them. If you wish to obtain documentation or written verification concerning your accounts, please contact your creditors directly.
  • You may provide additional information or documents to the credit reporting company relating to your dispute.
  • You may request a brief statement be added to your report. Your statement should be specific to your dispute of credit information.
  • You may file a complaint about the credit reporting company, or the business reporting the item, with theConsumer Financial Protection Bureauor your State's Attorney General's office. 

Inaccuracies in reporting
How do credit report errors happen?

Credit report errors can happen when data entry errors are made by a creditor who supplies account information to a nationwide consumer credit reporting company. They can also happen when a person is a victim of identity theft or when people have common names, and similar Social Security Numbers, birth dates, or addresses.

How can I prevent errors on my credit report?

Monitoring your credit report regularly is the single best way to spot errors. You can review your credit report from Equifax, Experian and TransUnion for free once every 12 months through this website and you can dispute any inaccuracies for free.

When applying for credit, always provide as much personal identification information as possible on the credit application. If you prefer to go by a nickname, be sure to stay consistent, but be aware that the more name variations in your credit report, the more likely errors can happen.

Make sure your creditors have current and complete address information for you.

Examine your bills carefully to make sure that the charges are yours and that balances are correctly shown.

Can companies that promise to clean up my credit report really do that?

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) say that you should be wary of companies that claim they can repair your credit. These companies are commonly called credit clinics. They don't do anything for you that you can't do on your own for free.

What is a mixed file?

A mixed file is when the credit files of two or more people are unintentionally combined in a credit reporting company's database. This can result in errors in name, phone, address and/or credit information. It may happen to people who have common names or similar Social Security Numbers, birth dates, or addresses.

What can I do if I believe that I have a mixed file?

If you believe your information has been mixed with someone else's, you should:

  • Submit a dispute with all of the credit reporting companies that have incorrect information on your credit report
  • Identify the information that doesn't belong to you. This may include addresses, other identification information, and accounts
  • Make sure your identification?tion information is complete and includes:
    • Your full name, including middle name and suffix, such as Jr., Sr., II, III
    • Date of birth
    • Social Security Number
    • Complete address, including apartment number if applicable
  • If you think you know who the incorrect information belongs to, such as a relative, let the credit reporting companies know as that may help them resolve your dispute faster
  • Check your credit report for inaccuracies at least annually
Posted by Michael Magness on August 14th, 2018 7:44 PM
Don't let a bad credit score stop you from buying a new home.  
If you have not reviewed your credit in a while,  you should.  Be proactive and take control of your credit.  If you are not familiar with how to read your credit profile, seek out a professional who can help you.  At 1st Los Angeles Mortgage, we offer free credit reviews for our prospective and existing clients.  

When reviewing credit, we pull a tri-merge report to review your credit profile with the main three credit reporting agencies, not just one.  This is important because Fannie Mae and Freddie Mac guidelines require a tri-merge credit report.  When qualifying for a mortgage, lending guidelines require us to use the lowest middle credit score from all borrowers.  

While it is true that having a 700 plus credit score will help you get better rates on a new mortgage, we do have mortgage lending programs that do allow for lower credit scores such as FHA.  FHA will allow credit scores as low as 580 along with down payments as low as 3.5%.  Unlike many retail banks, we also work with portfolio lenders that have expanded credit qualifying guidelines that can help as well.  

Don't lose hope if you are credit challenged.  Be proactive and take the first step.  Give us a call for a free credit review.  We will help you on the path to becoming a home owner.

Look for my next post on credit repair!



Posted by Michael Magness on July 5th, 2018 7:49 PM
With Tax Season upon us, now is a great time to review your mortgage.
Your financial needs change over time and you may want to adjust your mortgage to those changing needs.  Some things to consider when reviewing your mortgage:
  • Budget: Lower Rate and Payment 
  • Home Improvement
  • Debt Consolidation
  • College tuition or paying off student loans
  • Investment or 2nd home purchase
Another thing to consider, if you are self employed, tax planning can be crucial to qualifying for an upcoming home purchase or refinance.  We all want to limit our tax liability but you should know that taking large tax write offs can significantly affect your qualifying income and thus your ability to qualify for a mortgage.  This is why I recommend speaking to your mortgage professional about any upcoming home purchases and or refinancing needs well in advance so that you can plan accordingly.  

Call us today for your free Mortgage Review:  (888) 525-6267
Posted by Michael Magness on February 5th, 2018 7:11 PM