Are You a Candidate for a NO-DOC Loan?

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By Stratton Equities

You might be a candidate for a NO-DOC loan, or No documentation mortgage loan, if you do not meet the strict Consumer Financial Protection Bureau's (CFPB) mortgage loan conditions. This type of loan is a NON-QM loan and is designed for some rental property investors, borrowers that are self-employed, and those who do not meet conventional loan standards. private lenders can also fit self-employed borrowers into the QM space.

It is also an option for borrowers who have had challenges qualifying for a NO-DOC loan due to credit issues (such as bankruptcy, foreclosures, late payments, or other isolated credit issues) in the past or have an unconventional source of income.

Unlike the traditional income verification mandated for most loans, this type of mortgage loan allows you to be eligible based on alternative methods. NO-DOC loans create real estate investment opportunities for a wider array of people due to their more versatile qualification criteria.

A qualified mortgage loan is an “agency” mortgage-backed security. On the other hand, a No documentation mortgage loan is considered “non-agency” or “private-label”–is suitable for borrowers with exceptional circumstances or those whose incomes differ from month to month.

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Many individuals, including hospitality employees, self-employed business owners, and retirees have fluctuating earnings. This is where NO-DOC loans fill the void by offering dynamic underwriting measures for prudent borrowers with special income conditions.

A prevalent belief is that NO-DOC loans are "bad loans" in disguise, and therefore not recommended. The reality is that these kinds of loans have their own set of rules related to QM loans to ensure that private money lenders and borrowers are protected from a high-risk loan. The process of lending NO-DOC and NON-QM loans are very similar to that of QM loans, only with a different collection of documents during application.

What is the Difference between a QM and NON-QM Mortgage?

The biggest difference between a QM (Qualified mortgage) and NON-QM Mortgage, is that a QM Mortgage loan tends to be traditional government-backed loans and conventional loans.

Because a conventional loan (QM) is usually processed through a bank or traditional financial institution on an owner occupied property, a NON-QM with a private lender is the best solution for a real estate entrepreneur looking to purchase an investment property.

A NON-QM or NON-Qualified mortgage loan is typically portfolio loans for real estate investors that do not conform to the strict government or conventional mortgage guidelines.

Why Should Borrowers Choose NON-QM Loans on their Real Estate Investment?

Unlike conventional investment property loans that max out at 70% LTV, a NON-QM Mortgage Program maxes at 85% LTV and with no PMI with rates starting at 4.375%. This allows the borrower to put less money down on their purchase, typically loan amounts range between $100,000 and $5,000,000.

How can a Real Estate Investor Qualify for a NON-QM Loan?

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If you are a real estate investor that has an investment property and are looking for a quick turnaround without stringent guidelines, NON-QM loans may be better for you -- NON-QM loans do not need to abide by these strict guidelines! Bottom line = This means that NON-QM lenders can provide faster service and approval to more types of real estate investment opportunities.

Private lenders who utilize QM loans must first qualify a mortgage borrower’s income, liabilities, and monthly debt payments to determine whether the borrower can successfully pay back the loan in the future. To successfully qualify for a QM loan, real estate investors must fit the strict requirements set by the Consumer Financial Protection Bureau. This approval process requires borrowers to submit extensive documentation concerning their credit history, income, assets, and monthly debt payments, which usually takes well over a month to complete.

NON-QM and Private Money lenders understand that everyone’s situation is different and that to a traditional financial institution (like a bank) some borrowers may not present like a qualified candidate for a loan. This restriction could be due to the borrower's employment status, income, credit history, and liquid asset requirements - however with a non-qualified mortgage, private lenders focus on; high credit score, investing experience, and liquid assets.

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As a result, NON-QM loans’ lax restrictions make them ideal for these types of real estate investors:

Self-Employed Investors: Especially in light of the unprecedented year, with COVID-19, we completely understand how difficult it is to find steady income. These type of loan programs are based on the value of the property itself or the borrower’s credit score and liquid assets.

Foreign Nationals: Government backed loans typically require proof of a US Social Security number or a W2 (which is a US tax form). Because NON-QM loans don’t have such requirements, they are ideal for foreign nationals who are in the States on a visa and are looking to invest.

NON-QM Loans: The Benefits For Borrowers

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The key benefit of NON-QM loans is that they offer opportunities to borrowers who would not otherwise meet the mortgage requirement. Non-Qualified Mortgage Loans provide much-needed loan financing for millions of hard-working Americans, including self-employed people and small-business owners who have worked hard to achieve success but are not eligible for QM loans.

Below are some of the benefits NON-QM loans for borrowers:

• Looser, more versatile underwriting and guidelines
• Ability to close faster than a QM loan
• Ideal for 1-4 family investment properties
• NO-DOC Mortgage Loan: Does not require income verification or tax returns
• Self-employed people are top candidates for NON-QM loans

For specific borrowers with unique income sources or a high DTI, a NON-QM loan will enable them to obtain the money they need. NON-QM lenders also set standards for Non-Qualified Mortgage Loan borrowers and need to determine their potential to repay.

This type of mortgage loan is ideal for a wide variety of potential borrowers and can be used to buy commercial and investment assets. It is advisable to contact a certified loan officer to determine your qualification for a NON-QM loan, so they can review your profile to ascertain if this product is perfect for you.