Many homebuyers do not have the standard or consistent forms of income that are typically required by mortgage lenders. Yet, while they may not be able to qualify for conventional loans for various reasons, these buyers may still have enough income or assets to afford homeownership. In these situations, a non-qualified mortgage (non-QM) may be the solution.
In order reduce risk of loss after the mortgage meltdown in 2008, federal regulators tightened borrower requirements on mortgage loans that could be backed and bought by government agencies. Loans that meet all the new criteria are called “qualified mortgages.” Any loan that falls outside of those qualifications is called a “non-qualified mortgage” or non-QM.
A non-QM is a mortgage loan that uses alternate methods to verify income to qualify borrowers. Even though these loans do not meet the standard requirements, they are not necessarily riskier loans. All borrowers are still required to prove their ability to repay the loan. Because there is more work required to process non-QM loans, the interest rates tend to be anywhere from 0.5% to 5% higher, depending on the loan terms.
Non-QM loans are often a good fit for those who have unique income situations:
The benefits of Non-QM loans include the following:
The documents required will vary greatly based on the financial situation of the applicant. In order to verify income, you can provide either personal and business tax returns or bank statements or investment account statements. In some cases, income verification is not even necessary. Credit scores and debt-to-income ratios will be factored in. Non-QM loans take a more holistic approach to an applicant’s financial situation though, rather than relying on a standard underwriting matrix.
Non-QM loans employ non-standard mortgage terms in order to help borrowers qualify. These include loan terms longer than 30 years, interest-only loans, higher debt ratios or alternate income verification methods. Non-QM loans can be used for primary residence mortgages, refinance loans, cash-out refinances, and investment property loans.
A hard money loan is a short-term, asset-based loan, typically secured by real estate, and issued by private lenders or investment groups rather than traditional banks.
Here's a breakdown of what that means:
• Short-term: These loans are designed to be paid back quickly, typically ranging from a few months to a few years (e.g., 6-36 months).
• Asset-based: The loan approval is primarily based on the value of the collateral (usually the property itself), rather than the borrower's credit history and income.
• Higher Risk, Higher Cost: Due to the faster approval process and less stringent underwriting compared to traditional mortgages, hard money loans typically come with higher interest rates and fees.
• Private Lenders: Hard money lenders are usually private individuals or companies specializing in this type of financing, unlike traditional banks or credit unions.
Common Uses: Hard money loans are popular among real estate investors, especially those involved in:
o Fix-and-flip projects: Buying properties, renovating them, and quickly reselling them for a profit.
o Bridge financing: Providing temporary funding until a longer-term loan or sale can be finalized.
o Acquiring distressed properties or those with unique characteristics that might not qualify for traditional loans.
o Land acquisition and development.
o Commercial property deals.
Key differences from traditional mortgages
• Speed: Hard money loans are known for quick approval and funding, often within days or weeks, compared to the weeks or months for traditional mortgages.
• Approval Criteria: Hard money lenders prioritize the property's value and potential, while traditional lenders focus more on the borrower's credit score, income, and debt-to-income ratio.
• Interest Rates: Hard money loans generally have higher interest rates (e.g., 8-15%) compared to traditional mortgages.
• Repayment Terms: Hard money loans have shorter repayment periods, usually six months to a few years, compared to 15-30 years for traditional mortgages.
• Down Payment: Hard money loans often require a larger down payment (typically 20-35%) than traditional mortgages.
• Regulation: Hard money lenders are not subject to the same strict regulations as traditional lenders.
In summary, hard money loans offer a fast and flexible financing solution for certain real estate investment scenarios, but borrowers need to be aware of the higher costs and shorter repayment periods involved
Foreclosure Bail Out Loans are hard money loans used to help a property owner catch up their back payments on the mortgage loan, which will bring their loan current.
When a home owner applies for this loan, they are in one of these positions:
Call me as soon as possible if you need this type of loan. I can get you a quote usually within 2-4 hours and the loan can close within 10 business days.