Nov. 9, 2018
Good news everyone! Santa Cruz Lenders are now starting to offer “non-qualified” mortgages (non-QM) in to borrowers whose financial and/or property profiles fall outside conventional loan guidelines. "Conventional loans" are those which are designed to be sold to Fannie Mae and Freddie Mac, and they must meet guidelines set out by those entities to be eligible for purchase by them.
Why is that good news? In a nutshell, it means that it's easier for some Santa Cruz buyers to get into a reasonably-priced mortgage if their financial profile puts them "outside the box." These kinds of loans are great for people who are, for example, self-employed, investors, and others who may be asset rich but "cash poor."
How a Loan is Considered a “Qualified Mortgage”
Generally speaking, a loan is a qualified mortgage if:
A) 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)
B) There are no risky features like negative amortization, interest-only, or balloon loans
C) The maximum loan term is less than or equal to 30 years
D) The borrower debt-to-income ratio is 43% or less. Any loan that is eligible for purchase, guarantee or insurance by Fannie Mae or Freddie Mac, VA, USDA or FHA is a qualified mortgage even if the debt-to-income ratio is higher than 43%
The majority of loans fall under the 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.
What are Non-Qualifying mortgages?
Lenders however also offer “non-QM” loans to borrowers whose situation doesn’t fall under the “Qualified Mortgage”.
The phrase “qualifying mortgage” is a recent since 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 and approving non-QM loans, so they require very specific qualification standards to assess the borrower's ability 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 Qualified mortgages.
Non-QM loans allow borrowers to finance a variety of property types with flexible loan terms not typical to the conventional loan market.
Sample Non-Qualified Loans
Some specialty non-QM mortgages are as follows:
1) Jumbo Loan: One type of non-QM loan is jumbo financing. The loan limit for conforming is typically $453,000. High balance exceptions exist for the higher-cost real estate areas like Santa Cruz, Santa Clara, San Benito and Monterey counties. “High balance” loans in these areas may go as high as $679,650 with the exception of Monterey county which is $615,000 for conventional, FHA and VA products. “Jumbo” loans are any loan amounts exceeding these thresholds.
2) 10% down jumbo loan (with no mortgage insurance!)
3) Unlimited financed properties allowed for investors
4) Asset depletion and pledged assets for qualification
You might be asking yourself - what is "asset depletion" and "pledged assets" for qualifying? The non-QM loan program is designed to help borrowers who have low or no reported income but have substantial assets. The program allows the lender to use the assets as qualifying income based on a formula. The assets must be liquid and such examples are large retirement accounts or investment accounts.
You should know that these loans may also carry shorter term loans or be hybrid ARMs (adjustable rate mortgages), which are loans that are fixed for 5-10 years and variable afterwards. There are, however, also regular 30 years fixed loans. Rates are normally 2% -3% higher than market rates and costs (origination fees, etc.) are normally twice as much as with conventional loans.
As both a direct lender and a mortgage broker, Santa Cruz Lending uniquely positioned themselves to offer a loan program for every need. Give Victor Romero a call at (831) 214-2172 or email at firstname.lastname@example.org with any questions or to set up a free pre qualification or conversation regarding such programs.