FHA Versus NON-QM Loans

This guide covers qualifying for FHA versus non-QM loans. In the following paragraphs, we will cover qualifying and getting approved for FHA versus NON-QM loans.  The first batch of closings on FHA back-to-work extenuating circumstances loans was launched in the first week of December 2014. HUD’s FHA Back to Work extenuating circumstance due to an economic event was a great mortgage program but was a huge disaster.

The purpose was to shorten the waiting period for potential home buyers who have had a prior bankruptcy or foreclosure

The waiting period after foreclosure, deed in lieu, short sale, and bankruptcy was reduced to one year. However, there were certain guidelines the borrower must meet, and this mortgage program is not for everyone. In the following paragraphs, we will compare FHA versus non-QM loans.

FHA Versus Non-QM Loans

FHA and Non-QM (Non-Qualified Mortgage) loans are two types of mortgage loans that cater to distinct borrower profiles and have varying eligibility criteria. Here’s a comparison between FHA and Non-QM loans:

FHA Loans:

• • Government Backing: FHA loans are backed by the Federal Housing Administration, a government agency. This backing provides lenders with insurance if borrowers default on their loans, allowing FHA loans to have more lenient requirements.
  • Eligibility: FHA loans are designed for borrowers with lower credit scores and may accept borrowers with credit challenges.
  • Down Payment: FHA loans often involve a reduced down payment compared to conventional loans, often as low as 3.5% of the home’s purchase price.
  • Mortgage Insurance: Borrowers must pay an upfront mortgage insurance premium (MIP) and an annual MIP, even if they have a substantial down payment.
  • Property Standards: FHA loans have property standards that must be met to ensure the safety and habitability of the home.
  • Loan Limits: The limits for FHA loans vary depending on the geographical area and undergo annual revisions.

Non-QM Loans:

• • No Government Backing: Non-QM loans do not have government backing or insurance. They are not subject to the same regulations and standards as government-backed loans.
  • Eligibility: Non-QM loans are designed for Individuals who fail to meet the rigorous prerequisites of conventional or government-backed loans. This includes self-employed individuals, those with unique income sources, or borrowers with credit issues.
  • Flexible Criteria: Non-QM loans often have more flexible underwriting criteria, such as considering bank statements or alternative income documentation.
  • Down Payment: Down payment requirements vary significantly depending on the lender and the Non-QM loan program.
  • Mortgage Insurance: Non-QM loans may not require private mortgage insurance (PMI) even with a lower down payment.
  • Property Standards: While still subject to safety and habitability standards, non-QM loans may be more accommodating regarding the property’s condition.
  • Loan Types: Non-QM loans can come in various forms, including interest-only loans, asset-based loans, and loans tailored to unique financial situations.

Learn More About FHA Versus Non-QM Loans with Us.

Borrower Requirements on FHA Loans

FHA loans are designed to help borrowers with lower credit scores and smaller down payments. Borrowers typically need a credit score of at least 500-580 (varies by lender) and a minimum down payment of 3.5%.

Mortgage Insurance on FHA Loans

FHA loans require both an upfront mortgage insurance premium (MIP) and an annual mortgage insurance premium, which can increase the overall cost of the loan. FHA loan limits vary by location and are generally set at a level lower than conventional loan limits. FHA loans have property condition requirements, and certain property types (e.g., condominiums) must meet specific criteria.

Non-QM Loans

Non-Qualified Mortgages: Non-QM loans are non-conventional mortgages that do not meet the criteria for Qualified Mortgages (QM) as defined by the Consumer Financial Protection Bureau (CFPB). This means they don’t comply with the stricter lending standards established by the Ability-to-Repay (ATR) rule. Borrower Flexibility: Non-QM loans are more flexible in terms of borrower qualifications. They can be an option for self-employed individuals, those with unique income sources, or those with non-traditional credit histories.

Qualify for Non-Qm Loans today, click here

Interest Rates on FHA Versus Non-QM Loans

Non-QM loans typically have higher interest rates than conventional and FHA loans due to the increased risk for lenders. Lenders have more discretion when underwriting non-QM loans, which means they can consider factors beyond standard income and credit criteria.

Non-QM loans encompass many loan types, including interest-only mortgages, asset-based mortgages, and loans with shorter-term fixed-rate periods.

Choosing between FHA and Non-QM loans depends on your financial situation and borrowing needs. FHA loans are generally more accessible for borrowers with lower credit scores and smaller down payments but come with mortgage insurance costs. Non-QM loans can provide more flexibility for unconventional borrowers but may have higher interest rates and costs.

Comparing Requirements on FHA Versus NON-QM Loans

A letter of explanation on the extenuating circumstances due to an economic event six months before your bankruptcy filing or foreclosure was required. Borrowers needed to explain your employment/unemployment status and how your household income suffered at least a 20% reduction for at least six months.

Once the letter of explanation is completed, applicants need to go to www.gustancho.com click on the APPLY NOW icon on the top right, and complete the 4-page 1003 mortgage application.

Loan officers pulled a tri-merge credit report. 1003 and credit report to the underwriting department for their review must be submitted. Borrowers were instructed to complete a HUD-approved one-hour housing counseling course and get a certificate of completion. 30 days after receiving the housing counseling certificate, the file was ready to start processing and underwriting the mortgage application as a TO BE DETERMINED subject property. Borrowers often get a formal FHA Mortgage Approval within two weeks of application submission.

IMPORTANT UPDATE ON FHA Versus Non-QM Loans

Editor’s Note: HUD has eliminated the FHA Back To Work Mortgage Program as of 30 September 2017. This ARTICLE will remain on Gustan Cho Associates and will not be deleted due to archival reasons.

Home buyers interested in qualifying for a home loan after bankruptcy or foreclosure with no waiting period can qualify with our new NON-QM Loan Program and Bank Statement Mortgage Loan Program, where no waiting period is required.

A 20% down payment is required. Contact us at Gustan Cho Associates at 1-800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com for more information. It’s important to work with a mortgage professional to assess your eligibility and determine which loan type best fits your circumstances. Additionally, the availability of Non-QM loans can vary among lenders, so you may need to shop around to find a lender that offers them if you believe you qualify for this type of mortgage.