Non Prime Mortgage Loans Explained

Non prime mortgage loans are a type of financing option for borrowers who don't qualify for traditional prime mortgage loans. These loans are often referred to as subprime loans.

Borrowers with poor credit scores or a history of late payments may be considered non prime. According to our analysis, a credit score of 620 or lower is typically considered non prime.

Non-QM loans offer greater underwriting flexibility, allowing for more lenient income and credit requirements. This can be a game-changer for self-employed individuals or those with unique financial situations.

You can qualify for a non-QM loan with as little as 10% down, and in some cases, no job history or reserves are required. This makes it easier to invest in real estate without tying up all your funds.

Some key benefits of non-QM loans include:

Non-QM loans also offer a variety of fixed and adjustable loan options, with loan amounts up to $2.5 million and cash-out options up to $500,000.

Shopping for a jumbo loan can be a challenge, especially with restrictions like a 680 minimum credit score and debt-to-income ratios capped at 45%.

Qualifying for a jumbo loan requires meeting strict requirements, including having cash reserves to cover one year of mortgage payments.

The economy is showing signs of confidence, and with the loosening of current credit restrictions, more people are finding it easier to qualify for a jumbo loan.

Non-QM loans offer a range of benefits for borrowers who don't fit traditional mortgage criteria. You can qualify with as little as 10% down and credit scores as low as 620 are allowed, with compensating factors.

Non-QM loans provide greater underwriting flexibility, allowing you to qualify without personal income calculations or job history requirements in some cases. This makes them perfect for self-employed individuals or those with unique financial situations.

One of the key benefits of Non-QM loans is the ability to count rental income, including Airbnb and VRBO, which can help increase your borrowing power. This is particularly useful for real estate investors who want to purchase investment properties.

Here are some of the benefits of Non-QM loans at a glance:

In addition to these benefits, Non-QM loans also offer loan amounts up to $2.5 million and cash-out options up to $500,000. This can be a great option for borrowers who want to tap into their home's equity or purchase a larger property.

Non-QM mortgage payments are calculated just like regular mortgages, based on the same key factors: principal, interest, taxes, and insurance (PITI).

The principal portion of your payment goes directly towards repaying the loan balance.

Interest rates can vary depending on your credit score, with bad credit often resulting in higher interest rates and consequently higher monthly payments.

Taxes are calculated annually by local government agencies and can be paid as part of your mortgage.

Property insurance payments are rolled into your mortgage payment, and a benefit of non-QM loans is that they do not require Private Mortgage Insurance (PMI).

Here's a breakdown of the components of a non-QM mortgage payment:

Alternative income documentation is a game-changer for self-employed individuals and those with non-traditional income streams.

Non-Prime Jumbo loans allow for alternative income documentation, which can be a lifesaver for self-employed borrowers who don't qualify with traditional methods. Bank statements can be used as proof of income, making it easier to qualify for a mortgage.

Stated Income Loans take it a step further, allowing borrowers to declare their income without the need for traditional methods like pay stubs or tax returns. This can be a huge relief for those with complex financial situations.

Alternative Documentation Loans also don't require standard income documentation, instead using bank statements as proof of income. A property appraisal is used to assess the investment's resale potential.

Bank statements are a crucial document for non-QM mortgage loans, helping underwriters verify income and determine the ability to repay the loan. Lenders may ask for these documents with conventional loans as well, but they're most important for non-QM loans.

Here are some basic types of documentation you may need to get approved for a non-QM loan:

The exact type of documentation you'll need depends on the loan, but bank statements are often a key requirement.

Non-prime loans offer flexibility for borrowers who don't fit traditional credit score or income requirements.

Non-QM loans, such as Bank Statement Loans, allow self-employed borrowers to qualify with as little as 12 months' worth of bank statements. This loan type is often a good solution for self-employed borrowers, business owners, and entrepreneurs.

DSCR loans, on the other hand, allow investors to qualify using rental income, without considering personal income. This makes it easier for real estate investors to secure financing.

Private and hard money loans have high rates and short loan terms, but can be an option for real estate investors. However, DSCR loans often have more favorable terms for investors.

Non-Prime loans offer flexibility in terms, allowing borrowers to choose the right option for their needs. The most common term options are 5/1 and 7/1 ARM, which are adjustable rate mortgages.

A fixed 30 Year term is also available, but it's worth noting that any loan with a term longer than 30 years, often referred to as Jumbo Non-Prime, is considered a Non-QM, or non-qualified mortgage.

The 40 Year term is a popular option for Jumbo Non-Prime loans, and it can be paired with an Interest-Only feature to lower the monthly mortgage payment.

Non-prime loans are designed for borrowers who don't meet traditional lending parameters, and there are several types to choose from. One popular option is the Bank Statement Loan, which allows self-employed borrowers and those with alternative income streams to qualify for a mortgage using bank statements.

Debt Service Coverage Ratio (DSCR) loans are another type of non-prime loan, which allows investors to qualify for financing using the rental income of a property. This type of loan is ideal for real estate investors who want to qualify for financing without considering their personal income.

Private and hard money loans are also available, but they often come with high rates and short loan terms. For example, Deephaven Mortgage is a non-QM lender that offers a range of loan options, including DSCR loans and bank statement loans.

Here are some of the most common types of non-prime loans:

Non-prime loans can be a good option for borrowers who have been denied a mortgage or who don't meet traditional lending parameters. However, it's essential to understand the trade-offs, including higher interest rates and less risk protection.

Jumbo loans with 10% down are a game-changer for first-time buyers who have large student loans and other types of "good credit debt".

These loans offer a higher debt-to-income ratio of up to 43% and a lower credit score requirement of 680.

High-income earners can also benefit from 10% down jumbo loans, allowing them to invest their cash in other assets.

Traditional jumbo loans often require 20% down, making 10% down jumbo loans a more accessible option for many buyers.

Hard money loans are designed for investment properties.

These loans typically require higher down payments than many types of non-QM loans.

They tend to have exceptionally short loan terms.

Hard money loans are not a type of non-QM loan, but rather a distinct category of financing.