Alternative Mortgages FAQs
Alternative Lending solutions step in when banks can’t lend due to their guidelines. Chances are, if you can afford the payments, an alternative home loan solutions exists for your situation. Call me to discuss your needs and get your questions answered.
QM stands for Quality Mortgage and refers to conventional mortgages that follow guidelines set by the Consumer Financial Protection Bureau (CFPB), which standardizes uniform loan underwriting so that loans can be sold as securities on the secondary mortgage market. Because they must adhere to standardization to be bundled into a uniform product, QM loans can’t accommodate deviations from guidelines or documentation requirements. For more information, see here.
When a loan does not follow the underwriting or documentation guidelines set by the Consumer Financial Protection Bureau (CFPB) for Qualified Mortgages (QM), they are referred to as a Non-Qualified Mortgage (non-QM) loans.
Alternative loans are usually non-QM for one or more reasons, including the loan type, the borrower’s debt-to-income (DTI) ratio or documentation, or a property that does not conform to conventional guidelines (see here for details). Loan types vary and include standard 30-year fixed loans that allow more flexible underwriting guidelines, or when referring to loan type, Adjustable Rate Mortgages (ARMs), interest-only payment options, or terms that exceed 30 years.
There are many situations when a qualified individual or organization can not be approved for a conventional QM mortgage, especially in cases when time is of the essence, buying before selling without contingency, income that doesn’t reflect well on tax returns, recent changes or gaps in employment, credit or down payment issues, tapping into equity for down payment or business, recently retired, property issues, condo litigation, and a whole host of other issues.
Non-QM loans from reputable sources are perfectly safe. The key is understanding the terms and using them strategically.
Unfortunately, news outlets allow unqualified reporters to sensationalize mortgage information that is inaccurate, most especially during the mortgage meltdown, the shadow of which we still live. During the crisis, blame in the public eye was successfully shifted to products and brokers rather than on the banks that made a fortune providing the loans and regulators for turning a blind eye to what was happening. That’s a bit like setting a child loose in a free candy store and then blaming them for helping themselves.
There is nothing wrong with alternative loan products–only unqualified borrowers who never should have been approved.
Many highly qualified individuals do not meet QM mortgage criteria today, and it may have nothing to do with their situation, but a property a bank won’t lend on.
In summary, Non-QM loans are entirely safe, but, similar to QM loans, the key to their successful use lies in understanding the terms and your ability to afford the ongoing monthly payments.
In the case of certain ARMs or interest-only loans, no. It’s often possible to save on monthly payment or interest or both when the reason for the non-QM label has to do with the loan type.
When the reason for a non-QM mortgage is qualification or property issues, a non-QM mortgage starts anywhere from half a point up to three points higher than a conforming conventional loan on any given day.
Yes. We provide the full suite of Fannie Mae and Freddie Mac mortgages, FHA, VA, and USDA, as needed.
Many people don’t realize that banks have overlays on credit scores and at times, simply aren’t creative enough to think of a way a buyer legitimately qualifies. The number of times I’ve been contacted by buyers turned down by a bank who qualify for convectional mortgages is scary. What if they had given up on their dream?
Fully 9.1% of conventional loans get turned down. Since we turn down less than 1%, there is potentially a large gap which often can be closed with an alternative product or some preparation. Even if someone doesn’t qualify today, it doesn’t mean they can’t in 3 months. I council people to show them the gap between where they are and where they need to be to buy a home. Feel free to book a time to chat about your situation.
Private Mortgage Insurance (PMI) has to do with loan-to-value (LTV) – not loan type.
Risk analysis shows that the most risky loans are over an 80% LTV, regardless of how qualified a borrower is. Therefore, both QM and non-QM loans tend to have PMI. Some lenders run specials discounts for PMI and is determined by the LTV and borrower’s credit score. Currently, the nominal rate is .55%.
I am licensed in the C States – California, Colorado, and Connecticut. Through my company, I can also assist you in Florida, the mid-Atlantic (DC, DE, MD, PA, SC, VA, WV), OK, and TX.
There are numerous situations that require a fast closing, from ‘SOS’ financing when financing falls through to the need to compete with cash on an offer not yet submitted, and everything in between.
The best solution will depend on the situation.
Even though private lending is more expensive at the outset for example, it may be the right (or only) choice to accomplish what you want to. People are surprised to learn that some or all of the cash outlay for a private money option can be recouped. Call me to discuss this.
The other option with sufficient preparation is to fully pre-approve your loan with a lender, referred to as a full TBD underwrite (To Be Determined property address). We can close in as short as two weeks conventionally.
*Please note, for non-QM loans, we cannot close in two weeks unless the loan is pre-underwritten. For QM loans, we do not need to pre-underwrite to make that turn time.
Non-QM loans are a type of mortgage offered by institutional lenders that do not meet the criteria for QM loans but still follow some regulatory guidelines. Private lending, on the other hand, involves borrowing from individuals or non-institutional lenders, often with less stringent criteria and potentially higher costs, focusing more on equity and/or assets to qualify.
It’s essential to research the lender’s reputation, understand the terms and conditions of the loan, be aware of all fees and costs, and ensure clear communication about the loan process and expectations.
There are three main ways to do this, and which one is right for you depends on the situation. Please stay tuned for my forthcoming article on this topic, and feel free to call me to discuss it.