The Great Recession housing meltdown has led to a misconception that non-QMs are bad loans. If you're concerned about whether a non-QM is safe, it's good to know that they are not the same as subprime mortgages. You can get a mortgage with bad credit, or if your income is low, or if you have a high DTI. Non-QMs illustrate that mortgages are open to many types of home buyers. Buyer who lives off investments, or has high assets and low income.The type of borrower who might benefit from a non-QM loan includes: Even though your finances are healthy, you cannot tick the "income verification" box required for a qualified mortgage. But you don’t have trouble paying your bills, your credit score is high, and you have money in the bank. You have no way of knowing exactly how much you will earn from year to year. Some months, your income is high and others, only a little goes into your bank account. Imagine that you own a contracting business. Non-qualified mortgages are not backed by government agencies like FHA, VA, Fannie Mae, and Freddie Mac.Ī non-QM is a good idea when you have the income to make regular, on-time mortgage payments, but cannot get a qualifying mortgage. Borrowers cannot come back (as many did during the Great Recession) and claim that a lender knew they could not make the monthly payments. Today, as long as lenders follow these strict lending guidelines, they are protected from liability. Millions of people who had home loans could not afford the payments. This willy-nilly approach was one of the reasons the recession hit with such ferocity. Unethical lenders would crowbar home buyers into mortgages that were unaffordable. Some mortgages did not verify income at all. Why do these regulations exist? In the years leading up to the Great Recession, lenders seemed willing to approve mortgages for anyone with a pulse, including those with poor credit and low down payments. These minimum standards for qualified mortgages are part of the 2010 Consumer Protection Act and Dodd-Frank Wall Street Reform Act. The above regulations also protect buyers from risky loans. If you can't tick all of the above boxes, you'll need to look into non-qualifying mortgages.Įssentially, mortgage lenders need to know you have the ability to repay your loan.
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