What is Non-QM Lending? It stands for non-qualified mortgage lending. Next obvious question is… what would be a non-qualified mortgage? It’s basically a type of loan that doesn’t meet all the criteria of a standard loan or guideline.
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Most mortgages that are originated in this country are done at the local level with your everyday lender. Once closed and funded that everyday lender takes your loan and sells in the secondary market through Fannie Mae and Freddie Mac (government entities that package these loans and sell them to investors like Wall Street). In order for the local lender to sell these loans in the secondary market, they all must meet a standard set of guidelines that are set forth by Fannie and Freddie. If your particular loan and financial picture don’t meet these guidelines then there is a good chance your loan request will be denied. However, that doesn’t mean you are out of luck.
Large hedge funds have been in the business of making larger loans that do not meet the guidelines and may run more of a risk. This is the birth of the Non-QM lending business. So what would be a scenario in which you might use a Non-QM loan? In most cases, this works great for people who are self-employed and may not have a long W-2 history. Or let’s say your credit score is a little sketchy, no problem because they have loans and rates for people in the high 500’s and low 600’s. Let’s say you only had one year of tax returns that you could use to verify income – Non-QM might be for you. Or you wondered if you could get a loan from just a 1099 with no tax returns required… yep, you can do that too. One more scenario would be if you could only provide one year worth of bank statements and nothing else… yes, you could get a loan.
So I know you are thinking, “Dan, what’s the catch because this seems too good to be true.” No catch, just a higher interest rate. Since Non-QM lending has a higher risk and the hedge fund cannot sell these loans in the secondary market, that means you’ll pay a higher interest rate. How high… anywhere between 4.5% to 9%. Most of these loans fall between 5-7% and they usually are a 5/1 ARM meaning short term loans. This is ideal if it’s an investment property that you will sell in less than five years. If it’s a primary residence then this might just be the vehicle to get you into the house. Once the 5 years is up you can refinance into a more traditional style of mortgage.
If you think this type of lending fits what you are looking for then contact us at The Hawaii Team at 808-913-0899 or team@thehawaiiteam.com. We would be happy to explore this and other options with you.
Dan Polimino is a Broker/Owner with The Hawaii Team, Keller Williams Realty Maui.
