A Qualified Mortgage (QM) is a category where loans are more stable, with well-defined requirements. It is primarily intended to assist individuals who have been proven to afford a loan. The lender makes that effort to really determine that you, the borrower, have the financial ability to repay your mortgage even before you take it out. It does so by looking at documents like bank statements or a credit score report.
A Nonqualified Mortgage (non-QM), on the other hand, is the category that covers all those loans that don’t fit the QM characteristics. Therefore, it accommodates people who do not have the standard documentation to prove that they are capable of making those mortgage payments. If you do not fit into the conforming model but still have the credentials like sizeable assets or a big, if sporadic income, you can qualify for a non-QM.
Here are some reasons to get an outside the box, Non-QM loan:
Self-employed for less than 2 years
Self-employed and not showing a great amount of income on tax returns
High debt ratio yet plenty of reserves to make up for the debt ratio
Blemished credit due to unforeseen circumstances during the downfall of the economy
Immediately following the housing crisis, loans for borrowers in any of these predicaments was hard to find, but they are more readily available today by a variety of lenders.
Ability to Repay Rule
It needs to be stressed that a non-qualified loan does not mean you cannot repay the loan. The lender is still going to do due diligence in evaluating your financial situation. They will not provide loans to borrowers that do not demonstrate the ability to repay the loan. The Ability to Repay Rule put into place by the Dodd-Frank Act, requires lenders to ensure that borrowers can afford the loan.
Verifying income and asset
Accurately calculating the debt to income ratio
Evaluating credit history
Lenders, such as us, are able to charge higher interest rates and/or fees for loans that pose a slightly higher risk than a Qualified Mortgage would allow, yet they must make sure the payment is affordable. What this means is the days of stated income and stated asset loans are gone. Lenders need solid proof that the borrower can afford the loan with slightly higher rates and/or fees with ease. They are not supposed to put borrowers in a difficult financial situation.
Janus Mortgage Corporation is a mortgage broker licensed in the State of California, under the auspices of the California Bureau of Real Estate license number 02038085 and the National Mortgage License Registry NMLS Number 1690954, . All offers for loan programs are made for loans on California properties only.