Lenders offer “non-qualifying” mortgages (non-QM) to borrowers whose financial and/or property profiles fall outside conventional guidelines.
Generally speaking, a loan “qualifies” if:
(1) Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100K, higher percentage thresholds are allowed).
(2) There are no risky features like negative amortization, interest-only, or balloon loans.
(3) The maximum loan term is less than or equal to 30 years,
(4) The borrower debt-to-income ratio is 43% or less. Any loan that is eligible for purchase, guarantee or insurance by a GSE (Fannie Mae or Freddie Mac), VA, USDA or FHA is QM regardless of the debt-to-income ratio.
Most borrowers can meet their needs with one of these typical “qualifying” loans. Programs like Conventional, FHA, VA, and USDA do a good job of qualifying borrowers with a range of incomes, credit scores, and down payments.
Lenders also offer “non-QM” loans to borrowers that have special needs.
The phrase “qualifying mortgage” is a new one. The standard was implemented in 2014 by the Consumer Financial Protection Bureau (CFPB) as an industry safeguard for both lenders and borrowers.
Lenders take on greater risk by underwriting non-QM loans, so they require very specific qualification standards to asses the borrowers ability (and likelihood) to repay the loan. Specifically, lenders offering non-QM loans must maintain a minimum 5% stake in that loan for the life of the loan rather than selling the loan entirely as is typically the case with QM loans.
Non-QM loans allow borrowers to finance a variety of property types with flexible loan terms.
One common type of non-QM loan is jumbo financing. The loan limit for conforming (30-year and 15-year fixed), FHA, and VA loans is $417,000. High balance exceptions exist for the higher-cost real estate areas – of which San Luis Obispo County qualifies. “High balance” loans in SLO County go up to $561,200 for conforming, FHA and VA products. “Jumbo” loans are any loan amounts exceeding these thresholds.
Please see the jumbo financing page for a few examples of Central Coast Lending’s specialty non-QM loan program offerings:
As both a direct lender and a mortgage broker, Central Coast Lending has uniquely positioned itself to offer a loan program for every need. Give us a call at 805.543.LOAN with any questions or to set up a free pre qualification session with one of our expert loan offers.
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