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Non-QM Resource Center

Looking for more information on how to use non-QM to increase your volume? You are in the right place! The educational links below will tell you more about non-QM, the mortgage products and the profile of non-QM borrowers. By helping underserved borrowers you can grow your referral base and your business. Please contact an account executive with any questions or for more detailed information. Our account executives are always available to present to your clients on your behalf as the expert on non-QM. Increase Your Volume With The Power Of Angel Oak!

What is Non-QM?

A non-qualified mortgage or non-QM is a loan for borrowers who cannot meet the guidelines of an Agency or a qualifying mortgage (QM). An example is a self-employed borrower who cannot qualify using their tax returns. They need an alternative solution such as a Bank Statement loan to qualify for a home loan.

What are the advantages of non-QM features versus QM?

 

Non-QM must satisfy the ability to repay rule (ATR) just like a QM loan, but there are benefits to non-QM that do not apply to a QM loan. Non-QM can have loan terms that exceed 30 years or interest only payments.

  • The caps on fees and points are maxed at 5% versus 3% for a QM loan.
  • The standard DTI on a primary or a second home is 40/50, whereas the DTI on a QM loan can vary.

Self-employed borrowers can qualify submitting bank statements from a personal or business account in lieu of tax returns. Agency or QM loans do not allow bank statement submissions. A huge benefit for real estate investors is that non-QM does not have a limit on the number of non-owner occupied (NOO) properties a borrower can own. As well, non-QM allows NOO properties to close in an LLC while a QM loan does not allow this benefit.

How do non-QM products help borrowers who cannot qualify for a QM loan?

 

There are many instances of how non-QM can help borrowers or save a deal from a fall-out situation. Here are the most common scenarios:

Bank Statement (Personal or Business): Help self-employed borrowers qualify by basing income on their cash flow and liquid assets since their tax returns and W-2s of pay stubs alone may not be reflective of their ability to repay.

Debt Service Cover Ratio (DSCR): Helps borrowers qualify based on rental analysis to determine property cash flow versus income and debts.

Just Missed: Helps well-qualified borrowers whose credit profile falls just outside of today’s tight and inflexible lending standard.

Life/Credit Event: Helps a borrower that was affected by a negative life or credit event (e.g., bankruptcy, foreclosure, short sale, loss of job, divorce, medical issues, recent mortgage lates).

No Income/High Assets: Allows borrowers to qualify for loans using their liquid assets and does not require employment or debt to income to justify ability to repay. For borrowers who have enough assets to buy the home outright, but they don’t want to liquidate their assets to do so.

Program Options

Angel Oak Mortgage Solutions not only offers non-QM products that not all lenders have, but great options within those products. The features of our non-QM products can help originators provide more value to their borrowers and referral partners – and lead to more closed loans.

Here are program options available through our non-QM loan products important to know about:

Interest Only
Our 40-year fixed interest-only option can help lower monthly mortgage payments for your borrowers. Borrowers qualify on the 30-year amortized payment, but on the first ten years of the loan they make only interest payments.
 
We recast monthly – if they make a payment towards the principal, we will adjust the interest-only payment accordingly. This can be used for a purchase or a refinance.
 
Products: Bank Statement, Platinum Jumbo, Investor Cash Flow, Portfolio Select
Delayed Financing
Many cash buyers might want to finance the home, especially if they paid cash just to win a bid. You can turn cash buyers into a closed loan through delayed financing. A cash buyer is a potential borrower! Get the word out to Realtors and anyone else you know.
 
With delayed financing, borrowers who paid cash can get a mortgage within six months of purchase without waiting to recoup a majority of that cash. Let real estate investors know that they don’t have to leave assets tied up in a home after paying cash. Through delayed financing, investors can use the cash to buy a new property or renovate to ready it for renters.
 
Products: Bank Statement, Platinum Jumbo, Investor Cash Flow, Portfolio Select, Asset Qualifier, ITIN, Foreign National
TBD Properties
We can issue preapprovals for borrowers who do not yet have a property to purchase. Your borrowers will know what they can afford and the income we will use, but that loan does not go into our system for processing.
 
We can determine income for self-employed borrowers without using tax returns. We look at self-employed borrowers’ 1003 credit and either personal or business bank account statements to calculate income.
 
Products: Bank Statement, Platinum Jumbo, Investor Cash Flow, Portfolio Select, Asset Qualifier, ITIN, Foreign National
Cash-Out Refinance
We do a lot of cash-out refinances for our originator clients that allows their borrowers to tap into their equity to achieve various goals. All of our non-QM products can be used for a cash-out refinance.
 
Get the word out to borrowers that a cash-out refinance is a great option for high-interest debt consolidation, home improvement projects, real estate investment purchases, tuition, or to fund a new business.
 
Products: Bank Statement, Platinum Jumbo, Investor Cash Flow, Portfolio Select, Asset Qualifier, ITIN, Foreign National

Benefit to Originators

Originators who utilize non-QM offer a service that their competition may not offer. They become an expert and go-to for the non-QM borrower. The benefit is increased referrals and business growth despite changes in the market. Continue to increase your volume each year regardless of fluctuating interest rates, tighter Agency guidelines, and a slowing refinance market.

Non-QM Borrower Profiles

Real Estate Investors

What does the profile of a real estate investor borrower look like?
Any borrower buying their first investment property or a seasoned investor growing their real estate portfolio who are experienced in purchasing, renting, and managing rental properties. The majority of these borrowers are familiar with up-to-date market conditions, real estate trends and have already closed loans for multiple properties. They are not always familiar with alternative loan solutions when an Agency loan is not an option. Fannie Mae has tightened guidelines for second homes and investment loans making it harder to qualify. Competition is fierce in the market today, and many investors cannot afford a delay in closing.  They need to move fast requiring an easy loan solution for a quick close. They are qualified based on a debt service coverage ratio, FICO and LTV.
 
These buyers are purchasing based on an anticipated return on their investment and /or new stream of income.
 
Angel Oak Mortgage Solutions works with brokers and their real estate investor borrowers every day providing solutions that get to the closing table quickly.
Why would they require non-QM to qualify for a mortgage?
Depending on the borrower’s unique situation, they may not have the employment or tax documentation to qualify for an Agency loan. As mentioned, Fannie Mae has tightened guidelines for second home and investment loans.  Other situations include limits on the total number of properties, non-warrantable condos, and if rental property is held under an LLC.
 
The easiest solution can be a cash flow loan such as Angel Oak Mortgage Solution’s Investor Cash Flow loan. This loan is based on a rental analysis to determine cash flow and does not require employment or tax information. It is easy to do and quick to close working with us.
 
Originators who close these loans with Angel Oak Mortgage Solutions know to call us first to ensure a quick close without delays. Our account executives are experts – the Investor Cash Flow loan is one of our most highly utilized options.
What are non-QM mortgage options for real estate investors?
  • Investor Cash Flow– Qualification based on property cash flow with a minimum DSCR of 1.0. No income or employment information required. This loan is for non-owner occupied investment properties.
  • Warrantable and Non-Warrantable Condos – Investor Cash Flow and full doc Portfolio Select mortgage loans allow warrantable or non-warrantable condos.
  • Non-Owner Occupied, Second Homes, Investment Properties – Full doc Portfolio Select, Bank Statement, Platinum Jumbo

Jumbo Borrowers

What does the profile of a Jumbo borrower look like?
A Jumbo borrower is anyone purchasing a home outside of the conforming limit as set by the Federal Housing Finance Agency. Home prices are different across the country, and the limits for conforming and non-conforming homes can be too. Currently, the limits are $548,250 for a single family home and can go up to $822,375 depending on the state. Because of this, it is hard to pinpoint exactly the demographic of a Jumbo borrower. Generally, they are created for affluent borrowers wanting luxury homes. However, many average borrowers in high-cost areas such as New York City may not have an option other than a Jumbo loan.
 
Angel Oak Mortgage Solutions works with brokers and their Jumbo borrowers every day providing solutions that get to the closing table quickly.
Why would they require non-QM to qualify for a mortgage?
Jumbo loans are non-Agency or non-QM loans that cannot be sold to government agencies such as Fannie Mae or Freddie Mac. Jumbo loans are held by private lenders or sold off to investors. At Angel Oak Mortgage Solutions, we service transactions for the life of the loan as the end investor.
 
There are two types of Jumbo loans – Prime and Non-QM. Not all Jumbo borrowers can qualify for a Prime rate because the guidelines are tighter. If that is the case, they might be eligible for a non-QM Jumbo loan. Angel Oak Mortgage Solutions has a non-QM offering called Platinum Jumbo. It is a great full doc option that is easy and quick to close. We receive calls every day from brokers asking us to save a deal because their borrower was turned down for a Prime Jumbo loan.
 
Originators who close these loans with Angel Oak Mortgage Solutions know to call us first to ensure a quick close without delays. We can determine from the start which loan product to use to avoid a delay in closing.
What are non-QM mortgage options for Jumbo borrowers?
  • Platinum Jumbo – A full doc product for loans up to $3 million. Allows four years out of foreclosure, bankruptcy and deed-in-lieu. A one year tax return option is available as long as it is the most recent year.
  • Portfolio Select – A full doc product for loans up to $2.5 million. Allows only one years out of foreclosure, short sale and deed-in-lieu and two years for bankruptcy. A one year tax return option is available as long as it is the most recent year.
  • Bank Statement – For self-employed borrowers without tax returns to qualify. Loans up to $3 million.  Use 12 or 24 months personal or business bank statements to determine income. Two years seasoning for foreclosure, bankruptcy, short sale, or deed-in-lieu
  • Investor Cash Flow – For real estate investors to qualify without tax returns and employment information. Loans up to $1.5 million. Qualifies based on rental analysis to determine cash flow of property.
  • Down Payment Options – As low as 10% down depending on the mortgage product.

Self-Employed Borrowers

What does the profile of a self-employed borrower look like?
This loan is designed for credit-worthy borrowers who cannot use tax returns to qualify for a mortgage. They need an alternate income calculation to qualify. Qualifying income is the total of deposits less business expenses. Many times, the only obstacle is not having a tax return to satisfy ability to repay. They have good to excellent credit with steady income and, often times, looking to purchase a higher priced home. A significant share of our self-employed borrowers need a Jumbo loan purchasing homes outside of the conforming limit set forth by the Federal Housing Finance Agency (FHFA). They own their own company, physician practice, law firm, salon, restaurant, retail store, etc…
 
Non-traditional or gig work consists of income earning jobs based on a contractual or other work arrangement. Gig economy workers can be seasonal or hired on a project basis instead of long-term. Examples include freelancing, subcontractors and temporary agency workers. A good majority of these people receive 1099 tax forms instead of a W-2.
 
Angel Oak Mortgage Solutions works with brokers and their self-employed borrowers every day providing solutions that get to the closing table quickly.
Why would they require non-QM to qualify for a mortgage?
The most common scenario we see are self-employed borrowers who do not qualify for Agency loans. At times, brokers will call us with a borrower who was turned away asking if we can save the deal. We listen to the scenario and match one of our loan products for an efficient and quick close.
 
Self-employed borrowers are allowed deductions on their tax returns to minimize tax liability. At times, the income stated on the return will not allow them to qualify for the home they want to purchase. Their only option is a non-QM solution such as a Bank Statement loan using personal or business account submissions to determine income.
 
It can be especially challenging for those who are gig workers to qualify for an Agency loan simply because of how and when they earn income. They receive 1099 tax forms and do not have a W-2 to use to qualify for a loan. They can also qualify for a Bank Statement loan or our 1099 Income loan using 1099 earning statements in lieu of bank account statements.
 
Originators who close these loans with Angel Oak Mortgage Solutions know to call us first to ensure a quick close without delays. Our account executives let them know upfront which loan product they qualify for and the income we will use. Our Bank Statement review team completely reviews, analyzes, and calculates income for you upfront saving you time.
What are non-QM mortgage options for self-employed borrowers?
  • Bank Statement Product – 12 or 24 months personal or business bank statement submissions offering loans up to $3 million. Two years seasoning for foreclosure, short sale, bankruptcy, or deed-in-lieu.
  • 1099 Income – 1099 earners can use their statements in lieu of tax returns.  Use 1099s for the last year or last two years based on eligibility.
  • Full Doc Portfolio Select – now accepts one year tax returns for those eligible. Ideal for those just two years out of foreclosure, bankruptcy, or deed-in-lieu.
  • Asset Qualifier – self-employed borrowers with significant assets can qualify without using income or employment documentation. This is another option for borrowers who have income not reported on a tax return and can utilize liquid assets in savings and investment accounts instead.

Resource Documents