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:
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.
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 / firstname.lastname@example.org
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:
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:
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.
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.
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.
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
Your credit reports matter.
Review your credit reportWhat should I look for when I review my credit report?
Filing a disputeWhat 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:
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:
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.
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:
Depending on how you submit your dispute (through the internet or by mail), you may also be asked to provide the following additional information:
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:
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: