Serve More Borrowers With Non-QM Loans
Non-QM loans are increasingly more in demand today than ever before. Anyone who was skeptical about non-QM should understand by now that non-QM is not going away – because non-QM borrowers will always be around. Many self-employed borrowers, real estate investors and those with credit events can’t get a home loan without non-QM. These are credit-worthy borrowers who can demonstrate their ability-to-repay their loan. Non-QM has been around and performing well. In fact, over a decade has passed since the housing crisis hit the economy in 2008 and these much needed non-qualified mortgages (non-QM) went away creating a huge void in the market. Fortunately, non-QM was brought back into the market helping many borrowers purchase homes and the mortgage industry thrive. One important fact to understand is that non-QM loans are not the sub-prime loans that were partly responsible for the housing crisis. Today’s Non-QM loans were created in the wake of several regulatory measures designed to make qualified mortgages safer to homebuyers and to the investors that purchase mortgages on the secondary market. Many sub-prime loans that were issued prior to the housing crisis are not allowed by law today.
After the 2008 housing crisis, the Consumer Protection Act was formed, and the Dodd-Frank Wall Street Reform Act was constructed to create minimum standards for mortgages, including the Ability-to-Repay (ATR) rule and a qualified mortgage definition. As of January 10, 2014, these boundaries were adopted by the Consumer Financial Protection Bureau (CFPB) thus, providing banks and mortgage lenders with liability protection when originating QM loans. This allowed banks and mortgage lenders freedom to make more home loans with less fear of buybacks and lawsuits.
What Is A Non-QM Loan?
A non-qualified mortgage (non-QM loan) is any home loan that doesn’t comply with the Consumer Financial Protection Bureau’s existing rules on Qualified Mortgages (QM). The main difference between the two types of mortgage loans is that Non-QM loans for mortgages are protected by the lender against any type of lawsuit should a borrower become unable to afford the mortgage loan. 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.
Typically, individuals experiencing one or more of the following may qualify for this alternative:
- Higher debt ratio – The standard DTI on a primary or a second home is 40/50, whereas the DTI on a QM loan can vary.
- Blemish on FICO credit due to foreclosure or bankruptcy
- Self-employed for less than two years
- Self-employed for two years or more who can’t qualify using tax returns
Non-QM loans are not difficult to do and close just as quickly as a traditional loan. As long as the borrower meets the requirements for a non-QM product, they can get to the closing table without a problem. Non-QM loans offer more flexible requirements so that more borrowers can qualify who don’t fit the strict requirements under Fannie Mae and Freddie Mac.
What Types Of Non-QM Loans Are Available And Who Do They Serve?
Originators who utilize non-QM offer a service that their competition may not offer. They become a go-to for the non-QM borrower and Realtors whose clients cannot qualify for conventional financing. Save one deal for a Realtor and you have a client for life! The benefit is increased referrals and business growth despite changes in the market. Continue to protect your volume each year regardless of fluctuating interest rates, tighter Agency guidelines, and a slowing refinance market.
Here are the non-QM loans available at Angel Oak Mortgage Solutions and the borrower types who need them:
A Bank Statement loan is for self-employed borrowers who cannot qualify using tax returns. Typically, self-employed borrowers have good to excellent credit, large down payments and are buying higher-priced homes. They just can’t qualify using tax returns due to the tax deductions they take. The answer is a Bank Statement loan! Angel Oak Mortgage Solutions accepts 12 or 24 months of personal or business bank statements. 1099 earning statements are accepted as well. A 40-year fixed interest-only option is available with this loan. Only two years seasoning is required for bankruptcy, short sale, foreclosure or deed-in-lieu. According to study by Upwork, there are around 59 million self-employed, including the gig economy, in the U.S. today. That is a lot of potential borrowers who might need non-QM to qualify for a home loan.
This debt service coverage ratio (DSCR) loan is for real estate investors and is one of the easiest loans to do. Debt service coverage ratio or DSCR is a measurement of a property’s expected cash flow to determine the ability to repay a mortgage loan. Angel Oak Mortgage Solutions has a minimum DSCR of 1.0. A great benefit to this loan is that there is no limit to the total number of properties, it can be titled in an LLC, and we allow non-warrantable condos. Fannie Mae and Freddie Mac have a 10 loan limit, do not allow the property to be in an LLC’s name and do not accept non-warrantable condos. Many originators have repeated success with this loan and close multiple loans at once for their real estate investors.
Not all Jumbo borrowers will meet the requirements for Prime Jumbo. There is another option – Platinum Jumbo! Platinum Jumbo allows flexible options such as non-warrantable condos and only four years seasoning for credit events such as foreclosure, bankruptcy, short sale, and deed-in-lieu. We offer a one year tax return program with our non-QM Platinum Jumbo option. A 40-year fixed interest-only option is available with this loan. This product has saved many deals from Agency fall-out situations.
This product is ideal for borrowers who have recovered from credit events and don’t want to wait seven years to buy a home. Fannie Mae and Freddie Mac require seven years seasoning for certain credit events. Our Portfolio Select loan only requires one year out of foreclosure, short sale, deed-in-lieu and two years out of bankruptcy. In addition, just like all of our non-QM loans, this product allows non-warrantable condos. A 40-year fixed interest-only option is available with this loan.
This loan does not require income or employment information for qualification. Instead, it qualifies on liquid assets such as savings, checking, retirement accounts and other investments. Retirees, self-employed who have owned a business for less than two years, divorced with no income but high assets have had success purchasing or refinancing with our Asset Qualifier loan.
Our DSCR Investor Cash Flow loan allows foreign nationals to purchase an investment property in the U.S. with a 1:1 ratio on cash flow. This is only for foreign nationals who do not reside in the United States. Assets must be sourced and seasoned for 60 days and must be in a U.S. FDIC insured bank for a minimum of 30 days. Twelve months reserves required and must be in a U.S. bank. No foreign or U.S. credit is required.
Individual Tax Identification Number (ITIN) loans are for borrowers who do not have Social Security Cards. This is a full doc loan for primary homes only. Seasoning requirements are only one year for foreclosure, short sale, deed-in-lieu and two years for bankruptcy. Non-warrantable condos are allowed.
Angel Oak Mortgage Solutions Can Help
There are a handful of lenders who will put together tailored packages for non-QM borrowers with higher and lower credit scores to help them achieve the goal of home ownership, but Angel Oak Mortgage Solutions stands out. In fact, we were named the largest non-bank originator of non-QM in 2021 according to Inside Mortgage Finance. When it comes to your earning potential and reputation choose the best non-QM lender in the business. We offer alternative mortgage lending programs to help your borrowers who may not meet general Agency financing guidelines. With our guidance, you’ll be able to expand your product offering and grow your business with our tailored programs. Even in volatile markets, non-QM can help protect your earnings and referrals.
Angel Oak Mortgage Solutions offers a technology platform that allows for paperless submission and the ability to track loan status with the click of a button. Our streamlined operations encourage quick response times, allowing for dependable communication and decision-making.
About Angel Oak Mortgage Solutions
Angel Oak Companies is an industry leader in delivering innovative mortgage credit solutions. Through our integrated platform, we deliver solutions across asset management, mortgage lending and capital markets.
Angel Oak Mortgage Solutions is unique, offering a breadth of non-QM lending products to allow our clients to grow their business and better serve their customers. We reconnect qualified homebuyers with the investor community to create a win/win/win for the borrower, originator and investor. As a highly entrepreneurial organization, we are able to quickly adapt to the needs of our clients and embrace a strong service-based culture.
The bottom line is that non-QM offers a tremendous arena for originators who want to help deserving borrowers and enjoy great personal success. You have a head start in a market that is only now being recognized as attractive and sustainable. You can represent credible lenders whose ability to manually underwrite your work product is often superior to the automated, one-size-fits all standards of today’s Agency lenders. And, because you are specializing in diverse, manually underwritten products, your commissions can easily exceed those generated by most originators.
To start, talk to your Angel Oak Mortgage Solutions Account Executive and explore all of our many resources. We have a game plan for helping you identify and engage customers. We pioneered non-QM lending in 2013 and have been the industry leader ever since. We are at the forefront of exponential growth and encourage you to join us.