Have you heard? Non-prime mortgages are making a comeback—but don’t make the mistake of referring to them as a subprime loan.
Non-prime—or so called “non-QM loans”—are simply loans that do not meet the tight standards imposed after the housing crisis that almost brought down the American economy in 2008. However, non-prime loans are certainly not the risky loans of times past. Non-prime loans require higher credit scores, some assets, and more equity than their subprime predecessors.
Appetite Increases for Non-Prime Loans
It's reasonable that after such a crisis the gut reaction is to place strict standards to avoid another occurrence. Many experts believe the safeguards put into place have impeded growth by making it harder for banks to lend to large segments of consumers. But time heals all wounds. Ten years later, we have a few trail-blazers willing to step-out and create a niche for themselves by originating loans outside of the ‘conventional box.’
Why Non-Prime Loans Are All the Rage
There are millions of Americans who have been unable to buy or refinance because they don’t fit the complex rules associated with a “Qualified Mortgage.” Banks and large mortgage lenders have been terrified of buybacks and lawsuits, so they choose to lend only to loans that fall into safe harbor through the rules of the Ability-to-Repay. But the popularity for non-prime mortgages has skyrocketed, and investment firms have taken notice. Providing securitization for these private-label-mortgage-back-securities allowing lenders willing to step-out and fund these loans the ability to originate even more loans.
Special Features of Jumbo Non-Prime Home Loans
Folks shopping for a mortgage above the conforming loan limit of $424,100 have found just how difficult it can be to qualify for a Jumbo loan. Restrictions such as 680 minimum credit score, debt-to-income ratios hard capped at 45%, and cash reserves to cover one year of mortgage payments can be challenging to meet. With new administration comes new rules. There is more confidence in the economy, money is flowing, and the loosening of our current credit restrictions have begun.
Alternative Income Documentation
Non-Prime Jumbo loans allow for alternative income documentation. Many self-employed individuals who don’t qualify with traditional methods can possibly qualify with bank statements. For rental properties you can qualify for a mortgage loan with ‘stated income’ or no documentation at all.
Expanded Qualifying
Debt-to-income ratios are expanded to 55%.
More Flexibility on Credit
Credit requirements are less restrictive than conventional banks. New non-prime lenders have ‘minimum’ credit score requirements varying between 600 and 620. In addition, they have shorter time restrictions from major credit events; such as a foreclosure, bankruptcy, or short sale.
More Term Options
Besides the 5/1 and 7/1 ARM (adjustable rate mortgage), there is a fixed 30 Year term. However, with Jumbo Non-Prime the most popular is a longer-term option of 40 Years with an Interest-Only feature for a lower monthly mortgage payment. (Any loan passed a 30 Year term and the Interest Only feature are considered Non-QM, or non-qualified mortgages).
Higher Loan-to-values
The main feature of Non-prime loans though are the down payment and loan-to-value requirements. For Jumbo loans you can buy with as little as 5% down and refinance for cash-out purposes to an unheard 95% of your home’s value, with NO MI (mortgage insurance).
Conclusion
Experts believe Non-QM loan origination could potentially grow to hundreds of billions annually in the future. In other words, “Non-QM or Non-Prime’ could be a household name in the next decade, just like FHA or VA is today. If you think you're ready for a jumbo non-prime loan of your own, get started today!
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About HomeLife Mortgage
For more than 25 years, HomeLife Mortgage has built a strong reputation in California and Florida as a leading mortgage broker, servicing the needs of borrowers who have been unable to obtain conventional financing. HomeLife Mortgage is at the forefront of non-bank lending offering the next generation of mortgages including Jumbo Non-Prime Loans, Real Estate Investor Loans, Bank Statement Loans, FHA Loans and VA Loans.
