Non-QM Loans: An Alternative Mortgage Guide

Are you dreaming of owning a home and finding it difficult to qualify for a traditional mortgage?

An alternative home loan solution could be just what you need! These types of loans are great at opening doors for people that are self-employed, someone with only a tax id (individual tax identification number or ITIN), those looking to purchase unique properties like vacant land, mobile homes and non-warrantable condos, individuals that have experienced a recent credit event and everyone in between.

What is a Non-QM Loan?

Non-QM stands for Non-Qualified Mortgage. It’s a home financing solution for responsible borrowers and is specifically intended to help people that may not meet the requirements of a traditional home loan program.

These loans typically utilize special income qualification methods and are designed to help people with unique income streams. Some examples of the types people that find Non-QM home loans beneficial are individuals that are self-employed as an independent business owner, contractor, gig worker, artist, etc.

Loan programs in this space are typically more flexible in terms of credit. This flexibility may allow a borrower who has experienced a recent credit event like a bankruptcy or foreclosure, qualify for a new mortgage and opens doors to homeownership for people who have not yet established credit.

A Non-QM home loan is not risky or unsafe for borrowers. It’s simply a home loan alternative that allows the lender to review income, analyze credit and meet the borrower’s unique income or credit profile, differently.

Who Can Benefit from Non-QM Loans?

From self-employed individuals to people with a high debt-to-income (DTI) and those that only have an ITIN. Alternative mortgage options benefit borrowers who don’t meet the standard criteria for a traditional loan.

Non-QM programs are suitable for individuals with non-traditional income sources. This includes income derived from self-employment, 1099’s, irregular commission, or freelance work. An alternative home loan can benefit individuals that have experienced a recent credit event such as a bankruptcy or foreclosure, or ITIN holders who have not yet established credit in the US. Non-Qualified Mortgages offer flexible underwriting guidelines providing an opportunity for homeownership to those who may not qualify for conventional loans.

The advantages of considering an alternative mortgage loan for homeownership include:

  • Greater flexibility in the approval process
  • The ability to qualify based on alternative documentation
  • The opportunity for homeownership for borrowers who might not qualify for a traditional QM loan.

Real estate investors and those seeking financing for unique property types can also benefit in this space.

Non-QM Loan Requirements You Should Know

Credit Scores

While credit scores are an important piece of getting a mortgage, they play a less significant role when looking at an alternative mortgage product like Non-QM. At First National Bank of America (FNBA), we factor in things like a person’s income, assets, and work history to help us understand the homebuyer’s unique circumstance. Utilizing a holistic approach helps us qualify people with lower credit scores, non-traditional credit histories or unique income, for a mortgage. The flexibility that comes with these loans creates home buying opportunities for more people all over the United States.

Our loan programs are available to people with a score as low as 600 and to those who have yet to establish credit.

Quick tip: When applying for a home loan, it’s good to show that you can repay the loan in other ways, like having a high income or lots of assets. Being able to show/prove responsible money habits, even if it’s not reflected in traditional credit scores will work to your advantage. An example of this would be having records of rent payments being made on time, timely utility payments and savings. All these things can help secure a Non-QM loan, even when credit scores are below traditional lending guidelines.

How Do You Qualify For a Non-QM Loan?

Unlike traditional mortgages, Non-QM loans allow borrowers to utilize documents other than tax returns to prove income. Using alternate methods such as; business or personal bank statements, business profit & loss statements, 1099s, asset statements or a combination of income, can help borrowers get approved for a mortgage. At FNBA, we require just 12 months of income history, making it easier to qualify!

An FNBA Loan Officer will evaluate the borrower’s ability to repay a mortgage based on their income, assets, and length of employment. This evaluation will help us determine if you qualify.

Interest Rates and Loan Structure

Non-QM loans have interest rates based on credit score, down payment, and other factors. They offer flexibility with income verification, credit history, and property types. Compared to traditional mortgage loans, these loans generally have higher interest rates and require larger down payments. Origination fees, underwriting fees, and closing costs are a part of any home loan regardless of whether it’s Non-QM or traditional. FNBA’s Non-QM loans have a fixed rate and term and do not carry a prepayment penalty.

Keep in mind, the larger the down payment, the less you are having to finance. Often times, the monthly payment on a higher interest rate Non-QM loan is comparable to a loan with a lower interest rate where you put less money down.

Why Consider a Non-QM Loan for Homeownership?

Choosing a Non-QM loan for homeownership has key benefits. It has more flexible eligibility requirements, making it suitable for different situations. Unlike traditional home loans, a Non-QM loan does not strictly follow the Qualified Mortgage guidelines, allowing for an adaptable approach that fits each borrower’s needs.

For potential homebuyers with unique financial situations, like recent credit events or high debt-to-income ratios, a Non-QM loan is a great option. These loans provide an opportunity for individuals who may not qualify for a traditional mortgage to become homeowners.

Key takeaways

Non-QM loans are for people who can’t get traditional mortgages. They work for self-employed or freelance workers, artists, gig workers and immigrants, or those who have experienced a recent, negative credit event. These alternative financing solutions have flexible requirements and are a great alternative to traditional financing.

Non-QM loans are available to a broad range of potential customers. Complete this quick form today and one of our lending professionals will reach out to you to begin determining your eligibility!