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Mortgage Rates on Non-QM Loans
What rates should I expect and how long will it take to close and what do I need to show for getting approved for Non-QM loan for a house (Sale Price $680 K)
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Considering a Non-QM loan for a home with an asking price of $680,000? Here’s what you need to know about the rates, closing timeframes, and documentation required for approval:
Expected Interest Rates:
Rate Range: Typically, non-QM loans have higher interest rates than conventional loans. Currently, they can range from 7% to 10%, depending on factors such as credit score, down payment, and type of non-QM loan.
Rate Influencers:
Credit Score: Better credit scores tend to get better rates.
Down Payment: A larger down payment (20%+) can help lower the rate.
Loan Type: The rate will also vary by type of non-qm loan (e.g., bank statement loans or asset-based loans).
Closing Timeframe:
Typical Closing Time: Manual underwriting is necessary for non-QM loans because more documents involve manual underwriting. The mortgage process on non-QM loans may take longer than traditional mortgage financing. Plan on 30-45 days+/—. However, if complexity exists, further delays might occur during income verification or asset vetting. For example, the true nature of business ownership or the source of funds received isn’t easy to validate.
Factors Affecting Closing Time:
Documentation: How quickly you supply all needed documentation can affect how long it takes to close.
Underwriting Process: Since non-QM loans are manually underwritten. There could be more back-and-forth between lenders’ underwriter(s), which could extend time frames. This is especially true if parts of the file require additional explanation or confirmation due to particular financial details provided by borrower(s) that need further clarification before finalizing their decision-making process.
Required Documentation for Approval:
Income Verification: Unlike traditional mortgages, Non-QM offers flexible ways of verifying one’s income, including;
Bank Statement Loans: These require 12-24 months’ worth of personal and months’ business bank statements to confirm your earnings.
Asset-Based Loans: Asset-Based You’re only required herein to show proof that you’ve got enough liquid assets to cover the loan amount.
DSCR Loans: For an investment property purchase, a lender may require proof that rental income covers the debt service ratio on monthly mortgage payments.
Credit Score: Non-QM loans are available for people with lower credit scores. However, a score of 620 or higher may help secure better rates and terms.
Down Payment: Non-QM mortgages typically require a larger down payment than traditional mortgages, usually ranging from 10% to 20%, depending on the credit profile and specific loan program chosen.
Assets: You may be required to provide proof of reserves (savings, retirement accounts) covering several months’ mortgage payments.
Employment History: Stable employment needs to be proven depending on what type of non-QM Loan is being applied for or consistent business income shown if self-employed.
Final Thoughts:
Non-QM loans offer more flexible income verification and credit requirements than traditional mortgages, making them an option worth considering for borrowers who need to fit into the box. However, this often comes at the cost of higher interest rates and a more lengthy approval process. This is to expedite approval time while getting the best possible terms. Gather all necessary documentation upfront and maintain open communication with your lender throughout the transaction.
Let me know if there’s anything else I can do to help!