The Non-qualified mortgage loan, just as the name suggests, is a loan that does not comply with regulations of the Consumer Financial Protection Bureau on a qualified mortgage. On the other hand, a qualified mortgage, QM is a home mortgage loan that complies with the regulations and standards that are set by the national government. The mortgage rules and regulations are designed and set by the CFPB to secure loans and limit certain high-risk products and features. This article will give more information on qualified and non-qualified mortgage loans in Arizona.
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Rules of Qualified Mortgages
The Dodd-Frank Wall Street Reform and Consumer Protection Act set the features of the QM as below:
- There are no toxic features on loan- this implies that there are no interest-only loans, terms exceeding 30 years, ballon loans, negative amortization loans, and so on.
- There are no extra points and upfront fees- This implies that the fees and points that are charged to the borrower must not exceed the 3% of the borrowed amount.
- Limits on debt-to-income-ratios: Borrowers DTI ratio must not be more than 43%
There is typically a momentary exception that is given for loans that are eligible to be sold or insured by FHA, VA, or Freddie Mac, Fannie Mae. There are no other omissions allowable, and any other mortgage loan type which doesn’t follow the QM rule is categorized as a Non-Qualified Mortgage loan.
A perfect instance of a Non-QM loan is the interest-only loan that is still given by selected lenders. Well-off borrowers generally offer these loan types. The CFPB rule requiring financiers to document the capability of the borrower to repay the loan is not encompassed from being considered a QM. This is because the mortgagors, at times, face payment shock once they have an accountability to begin paying the principal. This is in often after about five to seven years of only paying the interest of the loan.
There are eight aspects to reflect when it comes to the compliance issue with the ability to reimburse that financiers must comply with strictly:
- The borrower’s current assets and income
- The monthly payment for mortgage-related obligations
- The monthly payment on the covered transaction of the borrower
- The credit history of the borrower
- The current debt obligations, alimony and child support payments
- The monthly payment on any simultaneous loan
- The monthly debt-to-income ratio or residual income
- The current employment status of the borrower
All the above eight aspects must be well-thought-out and documented by the lender providing the mortgage loan.
Non-Qualified Mortgage Loan Programs
In this loan, the mortgagor is qualified on the basis of the confirmed and qualified assets
- The assets must be appropriately documented to ensure the loan amount requested with an extra 60 months reserve to take care of all the different revolving debts and installments like alimony and child support.
- The assets can be cash in the bank, bonds, stocks, 401k’s, mutual funds, IRA’s, or any retirement accounts.
- Tax returns are not required in underwriting
- 12 months of successive statements are compulsory for asset corroboration
This is designed for knowledgeable real estate investors purchasing or refinancing investment properties to be held for the purposes of business.
- Income is not stated or confirmed, and tax returns are not compulsory.
- The borrower is qualified based on the cash flow of the property at hand, to be precise the debt coverage ratio, which is basically 1.25 for refinance and 1.0 for purchase transactions.
- The qualifying income of the borrower is calculated by 12 months most recent bank reports in place of the tax returns
- It is designed for self-employed borrowers with a minimum of two years self-employment history
- The loan amount cannot surpass high-balance or conforming loan limits
- Designed for the high credit quality borrowers with loan parameters falling just under the Fannie Mae and Freddie Mac regulations.
- 43% DTI ratio, a maximum of 50% with compensating factors
- Maximum DTI of 50%
- Designed for high credit quality borrowers
- The maximum cash out of 500,000
- Foreign nationals are eligible for funding under this program with extra overlays
For more information about qualified mortgage and non-qualified mortgage loans, contact our Arizona Mortgage Pro specialists today. You can as well make use of any of the tools that are found on our website for a free consultation.