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Non-QM

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Who is eligible for Non-QM Loans?

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Who is eligible for Non-QM Loans?

If your clients don’t meet the tight mortgage loan requirements of the Consumer Financial Protection Bureau (CFPB), they could be candidates for a NON-QM loan, also known as a Non-Qualified Mortgage Loan. These borrowers are those who own rental properties, are self-employed, or do not otherwise qualify for a conventional loan. Self-employed borrowers can also fit into the QM space with DG Pinnacle Commercial.

Borrowers who previously struggled to qualify for a QM loan because of credit concerns (such as bankruptcy, foreclosures, late payments, or other isolated credit issues) or have an unusual source of income may also consider this alternative.

This form of mortgage loan allows your clients to be eligible based on alternate ways as opposed to the usual income verification required for the majority of loans. Because they have more flexible qualifying requirements, NON-QM loans give a wider range of people the chance to invest in real estate.

Non-QM Loans Vs Common Misconceptions

An “agency” mortgage-backed security is a qualified mortgage loan. A Non-Qualified Mortgage Loan, in contrast, is appropriate for borrowers with unique circumstances or those whose salaries fluctuate from month to month. It is referred to as “non-agency” or “private-label.”

Many people experience wage fluctuations, including pensioners, self-employed business owners, and those working in the hospitality industry. By providing dynamic underwriting criteria for responsible borrowers with unique income requirements, NON-QM bridges the gap in this situation.

There is a common misconception that NON-QM loans are “bad loans” in disguise and should not be used. The truth is that these loans are subject to a different set of regulations than QM loans in order to safeguard NON-QM lenders and consumers from high-risk loans. The application process for NON-QM loans is largely similar to that for QM loans, with the exception of the documentation required.

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This form of mortgage loan allows your clients to be eligible based on alternate ways as opposed to the usual income verification required for the majority of loans

What Sets a QM Mortgage Apart from a NON-QM Mortgage Loan?

The main distinction between a QM loan (Qualified Mortgage) and a NON-QM mortgage loan is that a QM mortgage loan is more likely to be a conventional loan with government backing.

The greatest option for a real estate entrepreneur wanting to buy an investment property is a NON-QM with a private lender because a conventional loan (QM) is often performed through a bank or traditional financial institution on an owner-occupied property.

For real estate investors, a NON-QM or non-qualified mortgage loan is often a portfolio loan that does not meet the strict government or conventional mortgage criteria.

Why NON-QM Loans are Perfect for a Borrower’s Real Estate Investment?

Contrary to traditional investment property loans, which have a maximum LTV of 70%, a NON-QM Mortgage Program has a maximum LTV of 80%, has no PMI, and has rates as low as 7.46%. As a result, the borrower can make a smaller down payment on their purchase; average loan amounts range from $100,000 to $5,000,000.

The greatest option for a real estate entrepreneur wanting to buy an investment property is a NON-QM with a private lender

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How Does a Real Estate Investor Meet the Requirements of a NON-QM Loan?

NON-QM loans can be a better option for some of your clients if they’re real estate investors with an investment property and require a speedy turnaround without strict rules; these loans are exempt from these rules! The bottom line is that NON-QM lenders, including DG Pinnacle Commercial, can now approve additional sorts of real estate investment transactions more quickly.

To evaluate if a borrower can successfully repay the loan in the future, private lenders who use QM loans must first qualify the borrower’s income, liabilities, and monthly debt payments. Real estate investors must meet the stringent criteria established by the Consumer Financial Protection Bureau in order to be approved for a QM loan. This approval procedure typically takes more than a month to complete and involves borrowers to submit substantial evidence regarding their credit history, income, assets, and monthly debt payments.

Private money and NON-QM lenders are aware that every borrower has a unique situation and that not all borrowers would look like good candidates for a loan to a traditional financial institution (like a bank). The borrower’s job position, income, credit history, and need for liquid assets may be the reason for this restriction; nevertheless, with a non-qualified mortgage, private lenders prioritize a good credit score, investing experience, and liquid assets.

As a result, the lenient requirements of NON-QM loans make them perfect for the following categories of real estate investors:

  • Self-Employed Investors: We entirely comprehend how challenging it is to secure stable income, particularly in view of the historic year with COVID-19. Fortunately, NON-QM loans and asset-based loans are our areas of expertise at DG Pinnacle Commercial. We base our loans on the property’s actual value, the borrower’s credit rating, and their available liquid assets.
  • Foreign Nationals: Usually, government-backed loans demand a W2 or verification of a US Social Security number (which is a US tax form). NON-QM loans are the best option for foreign nationals who are in the United States on a visa and want to invest because they don’t have these limitations

The Advantages Of Non-QM Loans For Borrowers

NON-QM loans’ main advantage is that they present opportunities to borrowers who would not otherwise be able to qualify for mortgages. Millions of hard-working Americans, especially self-employed folks and small-business owners who have worked hard to succeed but are not eligible for QM loans, can now get the loan funding they need thanks to non-qualified mortgage loans.

The following are some advantages that borrowers receive from DG Pinnacle Comercial NON-QM loans:

  • Broader, more flexible underwriting standards
  • Being able to close more quickly than a QM loan
  • Ideal for 1-4 family investment properties
  • Does not demand tax records or proof of income
  • Those who are self-employed are the best candidates for NON-QM loans.
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Millions of hard-working Americans, especially self-employed folks and small-business owners who have worked hard to succeed but are not eligible for QM loans

Bottom Line

A NON-QM loan will help certain borrowers who have unusual sources of income or a high DTI get the money they require. Additionally, NON-QM lenders impose requirements for Non-Qualified Mortgage Loan customers and must assess their ability to pay back the loan.

A wide range of potential borrowers would benefit from this kind of mortgage loan, which can be utilized to purchase commercial and investment assets. It is best to get in touch with a licensed loan officer to find out if your clients qualify for a NON-QM loan and decide if this product is ideal.

This article was originally published in www.strattonequities.com

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Mortgage Loans For Your Self-Employed Customers

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Mortgage Loans For Your Self-Employed Customers

According to a recent McKinsey’s American Opportunity Survey, 36% of employed Americans identify as self-employed, representing a significant increase from an estimated 27% in 2016. This number includes “side hustles,” but 72% of independent workers say they have only one job. Those individuals, who include independent contractors, seasonal workers, vendors, freelancers, gig workers, and individuals who complete side jobs, often have difficulties securing a traditional mortgage.

Although this form of employment comes with benefits, such as greater flexibility and the ability to set rates and work schedules, it can be a significant hindrance when applying for a home loan. Most underwriters focus on elements such as steady employment, regular income, and tax returns to determine a borrower’s eligibility for a mortgage. However, independent contractors who receive 1099 earning statements often fall short in all those categories.

Although they may not qualify for traditional mortgages, self-employed individuals do not necessarily need to renounce their dreams of homeownership. 1099 mortgage loans are designed to help non-employees buy a home even if they may be ineligible for traditional home loans.

What is a Non-Qualified Mortgage?

Non-qualified mortgages, which include 1099 home loans, provide an alternative path to homeownership for borrowers who would not be eligible for qualified mortgages like conventional loans.

Qualified mortgages meet specific standards set forth by the Consumer Protection Act and the Dodd-Frank Wall Street Reform Act, signed by President Obama following the 2008 housing crisis. According to those criteria, the lender is restricted to using only the taxable portion of the applicant’s wages for qualification purposes. The procedure is relatively straightforward for employees who file a W-2 tax form since their income is typically regular and easily verifiable. However, not every borrower fits those standards. It is the case of self-employed individuals but also real estate investors, foreign nationals, and so on.

Non-qualified mortgages, on the other hand, use atypical methods of income verification to check the would-be borrowers’ ability to meet their mortgage obligations. For example, the underwriter may check the borrowers’ bank statements and other proofs of income, like 1099s, to verify their eligibility. Since non-qualified mortgages can be riskier for the lenders, they typically have lower loan-to-value limits as well as higher interest rates and credit score requirements..

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Those individuals, who include independent contractors, seasonal workers, vendors, freelancers, gig workers, and individuals who complete side jobs, often have difficulties securing a traditional mortgage.

Who Should Get a 1099 Loan?

1099 loans are a great option for self-employed borrowers, freelancers, contractors, and so on, who file using W-9s tax forms and will likely not qualify for a traditional mortgage.

In many cases, independent contractors write off their business expenses. This strategy helps them lower their tax burden but also reflects negatively on their taxable income and may disqualify them from a traditional mortgage. A 1099 mortgage loan evaluates the would-be borrowers’ financial soundness based on income from 1099 instead of tax returns.

A 1099 mortgage loan evaluates the would-be borrowers’ financial soundness based on income from 1099 instead of tax returns.

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How to Qualify for a 1099 Mortgage Loan?

In order to qualify for a 1099 mortgage loan, borrowers must be able to prove that their income is sufficient to meet their mortgage obligations. Although their monthly income may not be as regular as employed borrowers receiving a salary, they must show that their business is profitable and consistent enough to provide the funds for a home loan despite the uncertainties that come with self-employment.

Since 1099 mortgage loans are perceived as riskier for the lending institutions than traditional mortgages, lenders often require would-be borrowers to have higher credit scores (at least 620 and over) and lower debt-to-income ratios than typical mortgages (typically 50% or less DTI.) It also means that the mortgage lenders will require more supportive documents: 1099 mortgage loan applications can be paperwork-heavy. The more documentation the borrower can provide to support their claim on their financial stability and ability to generate an income, the more likely it is that their application will be approved. The specific loan requirements for a 1099 mortgage loan depend on the lending institution, but the borrower must typically satisfy the following criteria.

To qualify for a 1099 mortgage loan, the borrower must be self-employed for at least one to two years, depending on the type of loan they are applying for. The borrower must provide employment verification documentation, such as communications with your licensed, certified personal accountant (CPA), proof of business such as business licenses, business insurance, membership to professional organizations, and so on. You must also demonstrate that you have a steady, reliable income using your 1099, but also other proofs of income, including bank statements, checks, and paystubs if you have another form of employment or other proof of payments.

If you intend to apply for a mortgage, it may be best to keep your business and personal expenses separate to minimize your credit utilization and increase your chances of being approved for a home loan.

Bottom Line

If your client is self-employed, he or she may not qualify for a conventional mortgage due to tax deductions. Our team of underwriting experts will then use your client’s business or personal bank statements to determine their monthly income after expenses.

This will enable you to offer them the best loan product for their needs.

Let’s get in touch so you can start expanding your business.

📲 305-851-5225

This article was originally published in www.crosscountrymortgage.com