Are Nonqualified Mortgages The Same as Subprime?

November 19, 2019

Subprime mortgages first gained popularity in the early 2000s. However, there’s a new type of mortgage loan out there building upon the success of subprimes. Non-qualified mortgages are not subprime, but they are similar as they do not conform to the typical underwriting guidelines of qualified mortgages. 

Non-qualified mortgages are a confusing topic for a lot of people. Most people only know about QM loans because they are the most common. However, learning about non-QM loans can be the key to getting the house of your dreams, especially if you are self-employed. 

What You Should Know about Non-QM Loans 

When it comes to non-QMs, there are a few things to bear in mind.

SIVA Loans

State Income Verified Asset (SIVA) loans allow you to declare your monthly gross income. They also require the lender to verify assets through bank or brokerage statements, or another type of document that verifies the assets you claim on the loan application. 

SISA Loans

State Income Stated Assets (SISA) loans mean that the loan guidelines allow you to declare both your income and your assets. This means that you won’t have to verify the assets or income. 

No Doc Loans

No Doc Loans means you don’t have to verify anything other than your US citizenship. It’s important to note that guidelines for this type of loan will vary by lender, so it’s important to do your research before making a final decision. 

Getting Declined

You can be declined from a non-QM loan if your stated income doesn’t match your job description and title, or if your income is too high. If you are a server and declare that you make over $40,000 per month, an underwriter would question you, which could be cause for getting declined.

Underwriters have the ability to verify all of the information you state on your application, including the range of pay based on your job and title. While this information may not always be completely accurate, it does give them a ballpark to work with. 

An underwriter or lender may also require you to fill out a form that allows them to request information from the IRS, including your tax returns for the previous two years. If they have found that you lied on the application, you will be declined and may be unable to apply in the future. 

Minimum Credit Score

For almost all loans, there is typically a minimum credit score. These requirements will vary by both lenders and available programs. There is no one credit score that fits all situations. All minimums will vary by lender, and they may take your past and current circumstances to determine whether or not to accept your application and move forward with the loan. 

Minimum Downpayment

As with all mortgage loans, there is typically a down payment required. Usually, the only exception is a VA loan, which doesn’t require a down payment. The minimum down payment requirements will vary by lender and loan program. However, the general rule is that they usually require a higher down payment because the risk for the lender is higher. 

It’s always a good idea to save a decent down payment before buying a house. The more you put down at the beginning, the less you pay over the life of your loan, which can be beneficial if you have to move from the home or change jobs suddenly. It’s also much less stressful to pay your house off sooner rather than later. 

Where to find a Non-Qualified Mortgage Loan

More and more lenders are jumping into different avenues when it comes to loans, and non-QM loans are becoming increasingly popular. Lenders are offering more programs every year. Because of this, it’s a good idea to discuss your options with multiple lenders. The right loan program for you may not always be the first one you find. 

Every lender will have a different program and different terms, so you may need to discuss your options with more than three lenders before finding the right loan for you. Most non-QM loans are designed for the self-employed borrower who needs to do a stated income, while others are for those with less than ideal credit scores that don’t meet the requirements of qualified mortgages. 

Self-Employed Borrowers May Qualify for Non-QM Mortgages

Self-employed individuals often find it difficult to find a loan that’s right for them. Many don’t qualify for traditional mortgages under the qualified mortgage underwriting guidelines.

With conventional loans, you are required to provide the lender with at least two years worth of tax returns. If you write a lot of items off of your taxes, the lender may think you don’t have enough income to repay the loan.

However, lenders are now realizing that these circumstances should not affect someone’s ability to repay their loan and purchase their own house. Those who are self-employed should look for lenders who offer non-QM loans that can help them afford the house of their dreams. Depending on the lender, they may have a program that is designed specifically for this type of borrower.

Finding a loan can be challenging, especially if it’s your first time buying a house. When it comes to non-QM loans, it’s important that you always understand the terms. Terms will differ between lenders and their multiple available programs. Make sure to do your due diligence and get all the information you need to make the right decision.