Home Improvement

Non-Qualified Mortgages | What are they, and How do they Work?

As simple as it may sound, obtaining home mortgages is neither easy nor fun. As you work through the process, you’ll start to realize that many Dallas mortgage companies have a set of requirements in place to qualify you for a home mortgage. 

These requirements include a steady flow of income, great credit and employment history, and more. 

Sounds challenging, right? 

But there are countless other mortgage solutions available for borrowers that enable them to obtain financing even if they do not fulfill the lender’s stringent criteria. 

One of such solutions is non-qualified mortgages. 

We have created this post to help you understand everything you need to know about non-qualified mortgage, how it works, the rules associated with it, and how you can apply for this type of loan in Dallas, Texas. 

Non-qualified mortgages explained

By definition, a non-qualified mortgage is a mortgage designed specifically for those potential homebuyers who can’t fulfill the stringent mortgage criteria set by the lenders. 

Before we head over to highlight what exactly non-qualified mortgages offer to the buyers, first, have a quick look at the requirements one needs to fulfill when applying for the traditional types of mortgages. 

Verifiable income: In order to qualify for traditional mortgages, you need to have verifiable income, including pay stubs and tax returns.

DTI: In the case of traditional mortgages, your debt-to-income ratio must be less than 43%. 

Loan term: The entire loan term shouldn’t be less than 30-years. 

Fee limit: Also, the fees on your loan cannot exceed 3% on traditional mortgages. 

Who are non-qualified loans for?

Non-qualified loans are ideal for the self-employed and those who wish to invest in vacation/rental properties. Besides that, you can also benefit from this type of mortgage if you don’t have a good credit history. 

Because self-employed workers face more difficulty providing proof of income than salaried or wage-earning borrowers, this type of loan provides them with a way to buy their home without collecting bank statements or other required documentation. 

Non-qualified loans come with underwriting guidelines that enable the mortgage provider to see a big picture of your past credit and employment history to determine whether or not you can repay your mortgage payments over time. 

The general misconception about non-qualified loans is that they are not safe. But the fact is these loans work more or less the same way as QM loans. The only difference is they land with their own guidelines to ensure that both the lender as well as the borrower are shielded against high-risk mortgage options. 

How do non-qualified mortgages work?

Buying a new home in today’s time period isn’t as easy as it may sound. But luckily, everyone can acquire a mortgage provided they know what options are available to them. If you’re not aware of your options, your lender might unethically push you toward expensive mortgage options. 

While non-qualified mortgages aren’t insured or administered by the government, they still provide a way to people who wish to buy their own homes without having to show piles of evidence and documentation. 

The entire idea of non-qualified mortgages depends on underwriting guidelines. 

Pros and cons of non-qualified mortgages

Here are a few pros and cons of applying for a non-qualified mortgage:

Pros:

  • Allow home buyers to purchase a mortgage with a bad credit history
  • Higher DTI is allowed
  • You don’t have to present as many income proofs and documentation as you’d have to in the case of traditional mortgages
  • The application process isn’t difficult. In fact, it is more or less the same as qualified mortgages

Cons:

  • The loan fee/interest fee may be higher than traditional loans
  • These loans aren’t easy to find
  • Non-qualified loans are not guaranteed by the government or Fannie Mae and Freddie Mac

Applying for non-qualified mortgages

Applying for non-qualified mortgages isn’t different from qualified mortgages. The key here is to look for the right lender who’s knowledgeable about this particular type of mortgage. 

Should I get a non-qualified loan?

Well, it depends. A non-qualified mortgage is a good idea if you’re:

  • self-employed
  • retiree
  • medical professional
  • foreign investor
  • a homebuyer with many assets but low income
  • a buyer with unsatisfactory credit history

Non-qualified mortgages are open to different types of investors and homebuyers. Whether you don’t have enough proof of income or you wish to acquire financing with bad credit, you can give non-qualified mortgages a try. 

It is also essential for you to understand that non-qualified mortgages aren’t the same as subprime mortgages. Many people confuse these two terms. Remember, non-qualified mortgages are subject to their own standards (the application process is nearly the same as traditional mortgage applications as well).

In case you’re considering a non-qualified mortgage for yourself, make sure you get quotes from different mortgage lenders. Doing so will help you compare different options and choose the best possible deal on your home mortgage.

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