Credit issues? The non-QM loan could be for you
After the housing crisis, the Dodd-Frank Act ushered in regulatory reform for the minimum standards for mortgage lending practices.
Part of this regulation provides protection to lenders from losses, so long as the lenders sell mortgages that comply with the standards set by the Consumer Financial Protection Bureau. It’s a system of protecting everyone involved in order to avoid the widespread reemergence of toxic lending that led to the housing crisis.
But today, there are still people who are in need of mortgages and their credit histories cause them to miss out.
Life has its ups and downs. Sometimes major lows like bankruptcy and severe debt hit responsible and hardworking people. How will they buy a home once they’ve recovered?
Unfortunately, credit history tends to be an unforgiving standard to measure people’s ability to pay back money. Yet, there are some options available to those who do not meet the federal qualifications needed to secure a Qualified Mortgage (QM) Loan.
Cue the non-QM Loan.
Some lenders, like Bay to Bay Lending, offer loan options that are outside the bounds of what the government recognizes as Qualified Mortgage Loans. These are known as non-QM Loans. Here are some features of non-QM Loans to know:
- Stated Income: income that is outside the definition of fully-documented income recognized by the protocols for QMs. The ability to provide Stated Income in lieu of fully-documented income can be a useful feature for those who are without an adequate income history.
- Interest-only: this type of mortgage is generally considered non-qualifying. Interest-only mortgages are paid with interest rates tied to the principal amount borrowed and the rates go unchanged throughout the life of the mortgage.
- Jumbo Loans: loans that are of large scale in credit and outside of the typical loan limits set by the Federal Housing Finance Agency (FHFA).
Non-QM doesn’t necessarily mean higher risk.
While non-QM loans offer less liability protection to lenders, those who offer them are able to serve those who need mortgages. Non-QM loans must also meet a requirement known as the Ability-to-Repay rule. This rule requires lenders to make a reasonable assessment of the borrowers ability to pay off their mortgage.
The flexibility in lending practices provided by the non-QM Loan has already begun to sink into the housing marketing. S&P Global Ratings suspects that non-QM lending could grow exponentially in 2018.
At the moment, non-QM loans only share a small portion of the market. However, they are an option available via lenders who chose to provide those who do not sit within federal standards.
