What Is a Non-QM Loan?
A Non-QM loan, or a non-qualified mortgage, is a type of mortgage loan that allows you to qualify based on alternative methods, instead of the traditional income verification required for most loans. Common examples include bank statements or using your assets as income. Because of the more flexible qualification requirements, Non-QM loans open up real estate investment opportunities to a broader group of individuals.
Non-QM vs. Qualified Mortgage
Non-QM loans are an alternative to qualified mortgage (QM) loans. More specifically, a Non-QM loan is one that is not required to meet the federal government and Consumer Financial Protection Bureau’s (CFPB) guidelines for qualified mortgages.
Qualified Mortgage Requirements
The CFPB has established a set of rules for QM loans to provide more stable borrowing requirements. These are meant to protect borrowers from entering loan agreements that they cannot afford to repay. These stricter regulations were established in 2014 in response to the Great Recession that lasted from 2007 to 2009, during which many borrowers defaulted on their subprime mortgages and were forced into foreclosure. This not only had a long-lasting effect on the economy but damaged many individuals’ credit.
Highlights of Updated QM Requirements
Some of the key takeaways of the updates made to QM requirements are:
Highlights of Updated QM Requirements
- Points and fees that are 3% or less than the total loan amount
- Maximum loan terms of 30 years or less
- No negative amortization, interest-only, or balloon loans
These restrictive requirements have made it more difficult to qualify for a mortgage. If you do not meet the conditions required to prove your ability to repay, you will likely miss out on the investment opportunity or house of your dreams.
Since many first-time borrowers are only aware of QM loans, it can seem like investing or becoming a first-time buyer is an impossible feat. However, that isn’t the case. Non-QM loans are a credible and viable option for many borrowers.
Benefits & Risks of Non-QM Loans
While Non-QM mortgage are not held to these same restrictions, it does not mean that borrowers are putting themselves in an, especially risky position. There are checks and balances in place to protect both the buyer and the lender.
As with any loan, there are both Non-QM lending opportunities and risks.
Non-QM Mortgage Benefits
Non-QM loans are favorable to borrowers for many reasons, including:
Non-QM Mortgage Benefits
- Greater underwriting flexibility
- No personal income calculations are required
- No job history is required (in some cases)
- As little as 10% down required
- No reserves required (in some cases)
- Credit scores as low as 620 allowed (580 w/ compensating factors)
- Low debt-service-coverage ratio (DSCR) on investment properties
- Counting rental income (including Airbnb & VRBO)
For many potential homeowners and real estate investors, Non-QM loans are the only way to make investment opportunities plausible. As you well know, real estate opportunities don’t always linger on the market for long. A Non-QM mortgage can make it possible to make a timely purchase.
Non-QM Mortgage Risks
The primary risk of a Non-QM mortgage is not being able to pay back the loan should your financial circumstances drastically change. This is particularly of concern if there is another economic recession. However, defaulting on any loan is always a risk.
However, by maintaining reasonable lending standards while preserving flexibility, Non-QM loans offer a middle ground for borrowers who would otherwise have no options or be saddled with unreasonably high-interest rates that drastically increase the expense of the loan.
Non-QM Mortgage Products We Offer
Only a bank statement is required for this type of Non-QM loan. Borrowers can qualify with as little as two month’s bank statements however our most popular program is our 12-month bank statement loan. This loan is often a good solution for self-employed borrowers, business owners, realtors, consultants, and entrepreneurs.
While traditional jumbo loans still often require 20% down, we offer near-miss jumbo loans up to $3 million with as little as 10% down, up to a 55% debt-to-income ratio, and credit scores as low as 660. Jumbo loans with 10% down are often the ideal solution for first-time buyers who might still have large student loans and other types of “good credit debt”. 10% down jumbo loans are also good for high-income earners who are looking to invest their cash in other assets.
Private and hard money loans often have high rates and take a while to get approved for, which is not ideal for most real estate investors. Alternatively, both new and experienced real estate investors can benefit from the expanded criteria offered by no-income investment loans which allow you to build your real estate portfolio with fewer setbacks. The Debt-Service-Coverage-Ratio loan uses the rental income of the property to qualify and does not take into account your personal income.
Asset-based loans allow you to leverage assets you already have, including checking and savings accounts, investment accounts, or money market accounts, to secure a loan. This type of Non-QM mortgage is ideal for individuals with substantial liquid assets available. Although asset-based loans are typically associated with high-interest rates, we have access to wholesale rates and favorable borrowing terms. Griffin Funding does not require you to pledge your assets.
If you do not have a valid Social Security number, U.S. FICO score, or Individual Tax Identification Number (ITIN) you can still qualify for this type of Non-QM loan. To qualify, you will need to provide a VISA or VISA waiver as well as three active and open trade lines with a two-year history.
We offer interest-only home loans on 40-year fixed loans, 30-year fixed loans, 7/1 arms, and 5/1 arms. During the first 10 years of the loan, you will only pay the interest. This provides significant savings over the life of the loan. However, it’s important to keep in mind that you will not be paying down the principal balance during the interest-only period.
Recent credit events can make it challenging to secure a loan because many lenders view them as a red flag. However, we offer loan programs for borrowers with recent credit events including foreclosure, short sale, and bankruptcy. While we do offer options for as little as one day out from the credit event, loan terms typically improve the longer it has been, even in just a year or two.
Commercial Rental Property Loans
We offer a variety of loans specifically tailored to the needs of real estate investors who want to expand their portfolio to include single-family homes, 2 to 4 unit properties, condos, townhomes, multi-use, and multi-family 5 to 20 unit properties. Our loans are designed to make the process easier for buy-and-hold investors.
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