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I Want the Edge!The way we work is changing fast. More people are leaving traditional 9-to-5 jobs in favor of freelancing, gig work, or launching their own businesses. While this shift provides more freedom, it also creates new challenges, especially when it comes to securing a mortgage. That’s where Non-Qualified Mortgage (Non-QM) loans come in. These loans are designed for people who don’t fit the typical financial mold, offering a way for home buyers with non-traditional incomes to get approved.
Non-QM loans were once considered a niche product, but they’ve become increasingly popular in recent years. They now account for around 5% of the mortgage market, according to CoreLogic. And that number is expected to grow significantly. S&P Global predicts that by the end of 2025, Non-QM loans will account for nearly 30% of non-agency mortgage-backed securities. This growth is a clear indicator of how much demand there is for these types of loans, especially as more people turn to non-traditional forms of work.
For Realtors, understanding Non-QM loans is essential to keeping up with the evolving market. By understanding these loans, you can connect with a broader range of clients, positioning yourself as a resourceful realtor in today’s market.
Non-QM loans are for people whose financial situations don’t quite fit into the traditional mortgage mold. They’re not a one-size-fits-all solution but offer flexibility for a variety of buyers who may be overlooked by conventional lending standards. Here’s a closer look at who can benefit:
Non-QM loans offer several advantages that can make them an attractive option for borrowers looking for something outside the traditional path.
Non-QM loans let borrowers use alternative income documentation. Instead of sticking to rigid W-2s or tax returns, buyers can prove their income with bank statements, assets, or other methods that better reflect their financial situation.
Non-QM Loans often come with higher loan limits, making them ideal for those looking to buy homes in expensive markets where conventional loans may not be enough.
Many Non-QM loans offer interest-only periods, which can help lower monthly payments at the beginning of the loan, giving borrowers some financial breathing room in the early years.
As a Realtor, educating your clients on Non-QM loans can make you an invaluable resource. Here are a few ways to help:
While Non-QM loans offer flexibility, they require more thorough assessments because borrowers often rely on non-W-2 income. Mark Worthington, Branch Manager at Churchill Mortgage, emphasizes that stable employment is the best route to securing a mortgage:
"Going from employed to self-employed and vice versa most often ends the loan process. When the type of income you make changes, we need to see if the new type of income will be consistent."
This means forensic underwriting, where loan officers like Mark carefully analyze bank statements to gain a complete understanding of a borrower’s financial situation. Unlike traditional loans, this process is more time-consuming and complex.
Non-QM loans also don’t fit within the Fannie Mae or Freddie Mac systems, which adds additional risk. However, this is mitigated through ‘common-sense underwriting’, where lenders consider compensating factors like assets, lower loan-to-value ratios, and overall financial health. About 25% to 30% of Non-QM deals are made based on exceptions, unlike traditional loans, where exceptions are rare.
Despite these challenges, the Non-QM market has become more adept at managing risk. The use of technology and artificial intelligence has streamlined the process, allowing lenders to review borrower files more efficiently and accurately, while also lowering costs.
As the housing market and job landscape continue to evolve, Non-QM loans offer you a competitive advantage. These loans provide your clients with a path to homeownership when traditional options fall short. By familiarizing yourself with Non-QM loans, you position yourself as a trusted advisor, equipped to guide clients through a changing market. Ready to take your real estate business to the next level? Start learning about Non-QM loans today and offer the flexible solutions your clients need to succeed.
Learn more about common questions surrounding Non-QM loans.
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