Non-Qualified

Mortgage

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There are two types of mortgages:

Qualified

Non- Qualified

The difference is whether or not the government agenciesprotect the lender against any type of lawsuit against themshould a borrower become unable to afford their mortgagepayments and want to sue.

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What is a Non-Qualified Loan?

A “non-qualified” loan (non-QM), means thatthe borrower does not meet the “qualifiedmortgage” guidelines and poses a higherrisk in terms of default.

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What is a Qualified Mortgage?

A “qualified” mortgage (QM) means that the borrower meetscertain requirements pertaining to his ability to afford theloan at the time of application. In this case, the lender wouldbe protected against any penalties regarding this loanshould the borrower default.

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Qualified Mortgage Rules

Debt ratio cannot exceed 43% no matter the type of

loan (FHA, VA, conventional)

Points and/or fees should not exceed 3% of the

loan amount

The loan cannot be interest only, have negative

amortization, or any other risky features

Verification of income is required (no stated income

or asset verification only)

Loan term must not exceed 30 years

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Non-Qualified Does not Mean Not Able to Pay

The Ability to Repay Rule, put into place by the Dodd-Frank Act, requires lenders to ensure that borrowers canafford the loan. This means:

Verifying income and/or assets

Verifying employment

Accurately calculating the debt to

income ratio

Evaluating credit history

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The non-qualified loan is a great option forborrowers in unique circumstances including:

Self-employed for less than 2 years

Self-employed and not showing a great

amount of income on tax returns

High debt ratio yet plenty of reserves to

make up for the debt ratio

Blemished credit due to unforeseen

circumstances during the downfall of the

economy

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C L I C K H E R E

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Justin McHood is Americas MortgageCommentator and has been providing

Mortgage commentary for over 10 years.

INFORMATION PROVIDED BY:Justin McHood

Mortgage Commentator

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