We all know how difficult it can be to purchase a new home. This is especially true if you are a self-employed individual. Many people don’t understand that a self-employed individual must prove at least two years of self-employment before a lender can approve their home loan. Most standard real estate mortgages are not designed for self-employed individuals, which makes it almost impossible for them to purchase a house. However, with the help of Non QM loans, even the self-employed can now buy their dream house.Â
Non QM Loans Are Ideal For Self-Employed Individuals.
A non-qualified mortgage is a kind of home loan that doesn’t comply with the CFPB’s (Consumer Financial Protection Bureau) rules regarding traditional qualified mortgages. These guidelines often require a person to have a steady employment record before getting a mortgage. Such requirements often prevent self-employed people from getting a real estate mortgage.
However, Non QM loans offer you a chance to buy your own home. These loans ideally abide by the ability-to-repay rule, which ensures that the borrower’s income, employment, and credit history are verified. All lenders must ensure that you, as a borrower, can repay the money. Income documents and credit history are also critical in determining whether an individual is eligible for a real estate loan.Â
Top Benefits of Non QM Loans for the Self-Employed
Income Verification
Most self-employed individuals tend to have a unique financial situation than people who are employees of other businesses. Generally, self-employed people have income that can vary weekly or month to month. Some weeks, they might have a higher income, while other weeks, it may be low. In such cases, obtaining a qualified loan can be very difficult since the lender will view your income as unreliable. A non-QM loan allows you to verify your total income using your bank statements. You will not need any tax forms or pay stubs, so you can easily prove your overall ability to repay the loan as a self-employed individual.
Interest-Only Loan Options
Several non-QM loans offer interest-only payment options for the initial years of the loan. It allows all self-employed or individuals with poor credit scores to purchase their dream house without putting down as much.
No Private Mortgage Insurance
A PMI (private mortgage insurance) policy keeps the borrower covered if they default on their loan, but it means an additional cost over your regular mortgage payments. Most real estate lenders require you to have a PMI policy if you submit a small down payment. A non-QM loan will eliminate private mortgage insurance, allowing you to save money and quickly repay your loan.
Higher DTI Ratios
DTI (debt-to-income) is the borrower’s income amount versus all their debts and future home expenses. A lender often measures this amount to check if an individual can afford their monthly mortgage. Non-QM loans allow borrowers to have a DIT ratio above 43%. It will enable more individuals to qualify for a mortgage.
Leniency
Non QM loans offer a more extended payment plan for all self-employed individuals whose income varies monthly. With a payment plan of up to forty years, non-QM loans offer borrowers an inexpensive monthly cost. Selecting a forty-year payment plan means your costs are practically based on your business, so you will not lose your property if something happens. If you do seasonal work and earn a significant amount of your total income during a few months in a year, you can save some extra money from those months and pay your loan back little by little.Â
How to Select a Non-QM Lender
Rejected for a government or conventional loan? Does not mean it’s time for you to give up! You can still qualify for a Non QM loan. However, you must shop around and compare different rates and fees before making a decision. Ensure you fully understand the terms of your mortgage and have the ability to repay the loan when you qualify for it. It would help if you did not choose a lender based solely on their rates. The product you get may not be the right one for you and your current situation. So you must do your homework and find out what loan term is the perfect choice for you and your unique situation.