Non-Qualified Mortgage Loans

What Is a Non-Qualified Mortgage Loan

A Non-Qualified Mortgage is any home loan that doesn’t comply with the Consumer Financial Protection Bureau’s (CFPB) existing rules on Qualified Mortgage. A Qualified Mortgage (QM) is a home mortgage loan that meets the standards set forth by the Federal government. The CFPB defined Qualified Mortgage Rule and designed to create safe loans by prohibiting or limiting certain high-risk products and features.

Qualified Mortgage Rule:

Per general lender guidance, the features of a Non-Qualified Loan are as follows:

Alt-QM Asset/Bank Statements

  • The borrower is qualified based on verified liquid assets;
  • Assets must be documented sufficiently to cover the loan amount requested with an additional 6 months reserves to cover all revolving, installment and miscellaneous debts (e.g. child support, alimony, etc.);
  • Assets can be cash in the bank, stocks, bonds, IRA’s, 401k’s, mutual funds or any retirement accounts;
  • 12-24 months of consecutive statements are required for asset verification;
  • Tax returns are not needed in Underwriting.

Alt-QM Investor/Debt Service

  • Designed for experienced Real Estate Investor who is purchasing or refinancing investment properties to be held for business purposes;
  • A borrower is qualified based upon the cash flow of the subject property, specifically the debt coverage ratio (1.0 for purchase transactions and 1.25 for refinance);
  • Income is neither stated nor verified, tax returns not required.

Alt-QM Jumbo

  • Designed for high credit quality borrowers;
  • Maximum DTI of 50%;
  • Maximum Cash Out of 500,000;
  • Foreign nationals are eligible for financing under this program with additional overlays.

Alt-QM Agency

  • Designed for high credit quality borrowers who have loan parameters that fall just outside Fannie Mae and Freddie Mac guidelines;
  • Loan amount cannot exceed conforming or high balance loan limits;
  • 43% DTI ratio, maximum of 50% with compensating factors

Alt-QM Income

  • Designed for self-employed borrowers with a minimum of two years of self-employment history;
  • Borrower’s qualifying income is calculated by 12 months most recent bank statements in place of tax returns.

Interest Only Mortgages

The borrower only pays the interest on the mortgage through monthly payments for a term that is fixed on an interest-only mortgage loan. The term is usually between 5 and 7 years. After the term is over, many refinance their homes, make a lump sum payment, or they begin paying off the principal of the loan. However, when paying the principal, payments significantly increase.
If the borrower decides to use the interest-only option each month during the interest-only period, the payment will not include payments toward the principal. The loan balance will actually remain unchanged unless the borrower pays extra.

Who Should Consider An Interest-Only Loan?

  • Desire to afford more home now.
  • Know that the home will need to be sold within a short time period.
  • Want the initial payment to be lower and they have the confidence that they can deal with a large payment increase in the future.
  • Are fairly certain they can get a significantly higher rate of return investing the money elsewhere.

Disadvantages of Interest Only Loans

  • Monthly payments are low during the term.
  • The borrower can purchase a larger home later by qualifying for a larger loan amount.
  • Placing extra money into investments to build net worth.
  • During the interest-only period, the whole amount of the monthly payment (for mortgages up to $750,000) qualifies as tax-deductible.

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