Non-Qualified Mortgage Loans In Arizona

What are Non-QM Loans?

A non-qualified mortgage loan, or non-QM loan, does not satisfy the Consumer Financial Protection Bureau’s (CFPB) strict lending requirements for qualified mortgages. After the 2008 housing market collapse, these requirements were implemented to guarantee that borrowers could repay their loans. A non-QM loan may be considered if the borrower’s income or credit history does not meet these requirements.

Non-QM loans are offered to applicants who do not meet conventional lending criteria, with flexible income and credit requirements. However, borrowers may be required to make a larger down payment and pay a higher interest rate in exchange for this flexibility. Those with unusual financial situations or subpar credit histories may find them helpful.

Types of Non-QM Loans

Non-QM loans come in many forms, each designed to meet a specific subset of borrowers’ unique needs. These are some of them:

• Bank Statement Loans

These loans are designed for self-employed borrowers and do not require typical income documentation such as W-2s or pay stubs. Borrowers can instead qualify with as few as twelve months of bank statements. This enables lenders to evaluate borrowers’ cash flow based on their business revenue.

• Asset-Based Loans

Borrowers can use these loans to leverage assets they already own, such as checking and savings, investment, and retirement accounts—this type of loan benefits borrowers with substantial assets but a low income on paper.

• Jumbo Loans

These non-QM loans exceed Fannie Mae and Freddie Mac’s conforming loan limits. Borrowers looking to buy more expensive properties frequently use them. These borrowers may have a high income and excellent credit, but they require a loan amount more significant than the conforming loan restrictions.

• Investor Cash Flow Loans

These loans are intended for rental property owners. These loans qualify based on the cash flow of the financed property rather than the borrower’s income. This is advantageous for investors who own rental properties that generate significant revenue.

Also known as DSCR loans – Debt Service Coverage Ratio – these loans are distinct in that they are not based on the borrower’s income or credit score but rather on the amount of monthly cash flow a business or investment property generates compared to the amount of debt service payments the business or individual must make.

Traditional mortgage lenders examine the borrower’s income to determine eligibility, while DSCR lenders examine the investment property’s cash flow. This makes real estate investing more accessible to a broader spectrum of individuals, including those who may have trouble qualifying for conventional loans due to income or credit history. 

Pros and Cons of a Non-QM Loan

Non-QM loans provide a feasible financing option for people not qualifying for traditional mortgages. They do, however, come at a higher risk and cost. Non-QM loans have the following advantages and disadvantages:

Pros:

• Flexibility

Non-QM loans are typically more flexible than conventional mortgages and have less stringent credit and financial requirements. They can accommodate borrowers with complicated income histories or significant credit blemishes, making them a possible option for self-employed individuals, real estate investors, and others who do not satisfy the stringent requirements of conventional mortgage loans.

• Alternative for Non-Traditional Borrowers

Non-QM loans offer an alternative to borrowers not eligible for a QM loan. This includes freelancers, independent contractors, and small business proprietors who may have difficulty obtaining a conventional mortgage.

• Attractive for Real Estate Investors

Non-QM loans are preferable for real estate investors purchasing investment properties when traditional financing options are unavailable.

Cons:

• Higher Risk

Non-QM loans typically carry a higher default risk than conventional mortgages due to their less stringent requirements.

• More Expensive

Due to the higher risk associated with these loans, they are typically substantially more costly than conventional mortgages.

• Not Backed by Government Entities

Non-QM loans are not eligible for purchase by Freddie Mac or Fannie Mae, thus not backed by the government. This implies they may have different safeguards and benefits than these forms of loans.

• Potentially Less Stable

Because non-QM loans are made to people with unusual incomes or credit histories, there may be less certainty in a borrower’s capacity to repay, potentially leading to a less stable lending scenario.

Apply for a Non-QM Loan with Capital Home Mortgage

Using Capital Home Mortgage for a non-QM loan has several advantages for Arizona home buyers. Non-QM loans are ideal for those who may not meet the qualification requirements for conventional mortgages. They can be a game-changing lending solution, particularly for those who have yet to be given a chance to realize their homeownership dreams through traditional mortgages. These loans may be suitable for borrowers with non-standard or varying forms of income who have sufficient income or assets to afford homeownership. Non-QM loans may be more suited for self-employed, real estate investors, and jumbo borrowers, as these flexible mortgage options can better accommodate their unique financial situations. Capital Home Mortgage offers borrowers a streamlined process for Non-QM loans with competitive interest rates and closing costs.

Call (480) 360-6650 to speak with one of our Arizona Home Loan Specialists about Non-Qualified Mortgage loans.