In the realm of mortgage lending, there are different types of lenders for different types of borrowers. While most of us are familiar with conventional mortgages, other lenders exist for borrowers who don't fit the strict lending guidelines of these conventional lenders. Non-conventional lenders offer what is commonly referred to as non-qualifying or non-QM mortgages.
Conventional Lenders Must Adhere to Fannie and Freddie Guidelines
Conventional lenders use criteria set by the governmental agencies Fannie Mae and Freddie Mac. Fannie and Freddie are not lenders but companies that were created by the government. While they don't originate their own mortgages, they do buy mortgages that fit their criteria from other institutions and sell them as securities to investors. In order for lending institutions to sell mortgages to Fannie and Freddie, they agree to hold borrowers to a stringent set of lending criteria.
Income Verification and Non-Qualifying Mortgages
One of the hallmarks of conventional mortgage approval is strict income verification. In order to qualify for a conventional mortgage, a borrower must support the income they state on their application with copies of tax returns, W-2s, and pay stubs. While this works fine for people who are salaried employees or hourly workers, those who rely on tips, independent contractors, and self-employed individuals may not always be able to rely on these documents to show all their income.
For those who are looking for a way to finance a home that accepts alternate ways of verifying income, a non-qualifying mortgage can be a good option. Lenders that offer non-qualifying mortgages use different underwriting guidelines to decide the creditworthiness of their borrowers.
While each lender is different, a non-qualifying lender will offer alternative ways of verifying a borrower's income (or no income verification at all), more flexible underwriting criteria, fewer documentation requirements, and quicker approval turnaround. Consequently, non-qualifying mortgages can benefit many different types of borrowers, including
● Those who are self-employed, gig workers, or independent contractors
● Retirees
● Investors
● High asset individuals with low or no income
● Foreign nationals
● Borrowers with higher debt-to-income ratios than allowable by conventional lenders
● Borrowers with less than stellar credit scores
Are Non-Qualified Mortgages Safe?
Most of us remember the recession of 2008 that was precipitated by deregulation and subprime mortgages. These mortgages often went to borrowers who could not pay them back and led to a far-reaching foreclosure and housing meltdown.
But a non-qualified mortgage is not the same as the subprime mortgages of pre-recession lending. New protections were subsequently put in place with tougher oversight on financial institutions to ensure that it didn't happen again. Consequently, non-qualified mortgages are held to these same regulations and are just as safe as conventional mortgages.
Different Lenders Specialize in Different Mortgage Products
A non-qualified mortgage lender will still want to ensure that their borrowers are able to repay the loan. But they are willing to be more flexible about how they determine that.
Different lenders will typically specialize in different kinds of non-qualifying mortgage products. Some will verify income and cash flow based on bank account activity. Others will primarily look at the overall assets of the borrower. Still other non-qualifying lenders will hinge their approval on the property itself and not the borrower.
If you are buying or refinancing a home but have been turned down by a lender, or you fear you will not be approved under conventional guidelines, we may be able to help. Contact the mortgage professionals at NonQMHomeLoans.com. We offer a broad range of non-qualifying mortgage products to suit every need. Call us at (800) 413-0240 or apply for a loan easily online.
