< Back to all branch locations
admin login JOIN USOUR TEAM PARTNER WITH US

Looking for a loan but don’t know where to start? Have a non-traditional source of income and you’re not quite sure if you qualify for a typical loan? Perhaps you have had difficulty in the past getting approved for a mortgage and you’re exploring different options. Regardless, you’ll probably want to hear more about Qualified Mortgage (QM) loans and Non-Qualified (Non-QM) loans. This quick review will give you a better idea of what each type of loan has to offer.  

LEARN MORE

What’s a Qualified Mortgage Loan?

QM loans provide certain legal protections to lenders once they are able to show that you have the ability to repay your loan. The stricter guidelines for QM loans were put into place to protect homeowners and to reduce the likelihood of defaulting on home loans.

Under these guidelines, risky mortgage loan features such as balloon payments and interest-only payments are no longer allowed. In addition to upfront points and fees being limited, the guidelines established how much of the borrower’s income can go toward their mortgage loan debt. In general, the borrower’s debt-to-income ratio for a QM loan must not exceed 43%. In addition, no loan term can exceed 30 years and no negative amortization can take place. (Negative amortization allows your loan principal to increase over time even though you’re making payments).

What’s a Non-Qualified Mortgage Loan?

Any loan that doesn’t meet all of the criteria of a QM loan is essentially a Non-QM loan. These types of non-traditional loans are ideal for borrowers who have fluctuating or lump sum incomes or who are self-employed as independent business owners, entrepreneurs, contractors, hospitality workers, retirees, actors, artists, musicians, etc. 

Non-QM loan borrowers may have the income but don't necessarily qualify for a traditional mortgage with their tax returns, W-2s or pay stubs alone. Generally, Non-QM lending guidelines dictate that the lender must analyze the borrower’s Ability to Repay (ATR) through various terms such as reviewing cash flow of personal and business bank accounts. Non-QM loans are typically for borrowers with unique income qualifying circumstances, along with possible credit issues such as a bankruptcy, foreclosure, late payments or other isolated credit issues.

How They Differ

A significant difference between a QM loan and a Non-QM loan is that a Non-QM loan uses alternative methods of income verification (vs. the standard income methods of verification of a QM loan) to help the borrower get approved for a mortgage loan. Also, Non-QM loans are not insured, guaranteed or backed by FHA, VA, Fannie Mae or Freddie Mac. Also, a loan that meets QM requirements provides safe harbor for lenders against lawsuits from borrowers who default on their loan.

What Loan is Right for You?

It really comes down to which loan applies to your situation and meets your needs. A New American Funding loan officer can share a variety of mortgage loan options with you to help determine which loan is right for you. Contact us today to learn more!

GET STARTED

 

Feeds

Cheaper Construction Loans Mean More Custom Homes

Posted To: MND NewsWire

Builders are finding that acquisition, development, and construction (ADC) loans in the last half of 2019 were both easier to access and less costly. That may be, in part, behind a fourth quarter 2019 surge in custom home building. The National Association of Home Builders' (NAHB's) quarterly survey of its builder and developer members found that the average interest rate on ADC loans declined in Q4 from 6.39 to 6.13 percent on loans for land acquisition and from 6.31 to 5.94 percent on development loans. Loans for single family spec construction declined 36 basis points to 5.63 percent and from 5.63 percent to 5.38 percent for pre-sold homes. It was the second consecutive quarter in which rates for all four loan categories declined. NAHB notes that, because ADC loans are typically short term...(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

MBS Week Ahead: High Gear nCov Fear Pushing Rates Toward All-Time Lows

Posted To: MBS Commentary

Coronavirus (or nCov for short) made more disconcerting headlines over the weekend and has generally proven itself to be far more capable in that regard than its long lost cousin, SARS. When the nCov market narrative first emerged in mid-January, the comparison to SARS was still unknown. Now that the virus is unequivocally spreading faster, farther, and killing more people, markets are free to express more panic. But why panic? It's not as if nCov will kill more people than the flu does each year, right? So what's the big deal? In short, the big deal is that everyone is used to dealing with the flu. There are well-established figured on how many people will probably get it and how many of those will die. There's also a vaccine that is occasionally effective and that may at least...(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.