Section 6: Non-QM Loan Refinancing
Non-QM Loan Refinancing
Non-QM loans are well suited to a broad range of potential consumers and can be used for rate/term refinance and cash-out loans. To ensure you qualify, it is best to consult a licensed loan officer, so they can assess your profile to determine if this product is right for you. The Non-QM Home Loan program provides qualified homeowners with a simple way to take advantage of rates and decrease their monthly mortgage payment. Beyond that, homeowners can get cash back on a jumbo refinance and use the proceeds for a variety of needs, from paying off debt or making home improvements and much more. Now the current economic climate makes a great time or many homeowners to take advantage of the numerous benefits found in a jumbo refinance.
To get started, call, or start your Non-QM refinance quote online.
When Should you Refinance a Non-QM Loan?
In general, you should refinance a Non-QM loan if:
Your Home’s Value Has Gone Up
If you have built equity in your home either by the housing prices rising or paying down your loan it might be a good time to refinance. If you need to lower your interest rate, need cash to pay off debts, or do an additional project on your home then a refinance might be the best option for you.
10 steps to Refinance Your Non-QM Loan
Most borrowers follow the following Non-QM refinance steps:
1. Determine if you still need a Non-QM loan.
The criteria for Non-QM loans changes each year FHFA sets the conforming loan limits. If your existing loan balance exceeds these limits, a Non-QM refinance loan may be your only option.
2. Check your credit scores.
Many Non-QM lenders set the minimum bar at 700 for a Non-QM loan. That’s 80 points higher than the Non-QM minimum, so make sure you check your credit score before you apply for a Non-QM refinance.
3. Make sure your debt-to-income (DTI) ratios are in line.
Non-QM lenders measure your DTI ratio by dividing your total debt by your gross income, and 45% is the standard maximum. That’s significantly lower than the 50% ratio conforming lenders allow.
4. Shop for the best Non-QM refinance rates.
Some lenders specialize in Non-QM loans. Banks may even offer lower rates if you carry large deposit balances with them. Compare loan estimates with at least three to five lenders to make sure you’re getting the best deal.
5. Ask the lender when you can lock in your rate.
Non-QM lenders may require a loan approval before locking in your rate. Non-QM rates change daily, so make sure you know your lender’s lock policy to avoid any surprises in the terms of your rate later in the process.
6. Provide your paperwork promptly.
Because Non-QM lenders don’t allow automated approvals, you’ll have to provide more financial paperwork. Non-QM loans typically take longer to close than standard loans, because a human underwriter is involved in the decision making and is responsible for ensuring the loan meets Non-QM investor standards.
7. Keep your cash liquid.
It’s not uncommon for a Non-QM lender to require proof of six to 24 months’ worth of mortgage payment reserves in a liquid account, meaning it can be easily converted to cash.
8. Plan for a pricey appraisal.
If you’ve got a custom home or a lot of square footage, appraisers may charge more to find comparable homes, and for the extra legwork it will take to measure out and list all the amenities in your home.
9. Notify your escrow officer and loan officer of any trusts in advance.
Lenders want to make sure they can collect on a Non-QM loan if you default, and they may require extra steps to approve any trust your property is held in. Escrow officers may also need a copy of the trust to properly prepare your closing documents.
10. Review your closing disclosure and close.
Like any refinance, you’ll receive a closing disclosure three business days before your closing. Review the paperwork and make sure the numbers are what you expected. If everything looks correct, your loan documents will be returned to the lender, your old Non-QM loan balance will be paid off with the funds from your new Non-QM loan.
Non-QM Refinance Requirements
. At least 20% equity in your home
. A minimum 700 credit score
. Total debt that doesn’t exceed 45% of your income
. No major credit problems in your recent past, such as bankruptcies or foreclosures
. Full documentation of all sources of income including tax returns, paystubs, CPA letters and IRS validation of all filed tax forms
* Requirements may very program to program and lender to lender
How to Get the Best Non-QM Refinance Rates
Non-QM lenders typically set interest rates based on their own standards. Shopping for the best Non-QM refinance rates could save you thousands or even hundreds of thousands of dollars over the life of the loan.
You’ll typically snag the best Non-QM mortgage refinance rates if you:
Have a high credit score.
Although 700 is the minimum, Non-QM lenders may reward higher-credit-score borrowers with lower rates and closing costs.
Don’t borrow the maximum.
Non-QM lenders may offer a lower rate if you’ve built up substantial equity and just want to refinance to save on your monthly payment (and not tap equity).
Avoid niche NON-QM loan programs.
Some Non-QM lenders offer special programs to make Non-QM refinance qualification easier, such as using bank statements instead of tax returns to prove income. These flexibilities usually require you to pay a premium in the form of a higher interest rate.
Two Great Non-QM Loan Refinancing Options
Traditional Non-QM Refinance
A Non-QM refinance is simple loan backed by the U.S. Department of Agriculture used to refinance or replace an existing mortgage. Like Non-QM loans, a Non-QM refinance offers fantastic rates, lower costs, and greater flexibility than other programs.
Cash-Out Refinance
A "Cash-Out" refinance is an option for those with a Jumbo loan looking to take advantage of their home's equity to access cash for home improvements, emergencies, pay off debt, or any other purpose.
Thinking about refinancing? Speak with an Orbit Home Loan specialist to discuss your options.
Non-QM Refinance Eligibility
In general, we find borrowers are in one of these situations that best fit a NON-QM borrower. Those situations are, borrowers who are self-employed, borrowers with high net-worth, borrowers investing in multiple rental units, borrowers with recent bad credit, borrowers who are foreign nationals, and borrowers who want an interest-only payment option. While there are no uniform underwriting standards for non-QM loans, lenders tend to specialize in certain types of non-QM products. Interest rates and loan terms may vary widely from lender to lender. A non-qualified mortgage loan is more commonly referred to as a Non-QM loan. Within the mortgage industry, a qualified home loan is one that complies with the requirements set forth by the Consumer Financial Protection Bureau (CFPB) and standards set by the federal government. These include loans sold or insured by entities such as Fannie Mae or Freddie Mac. Not every borrower fits neatly inside a traditional government matrix.
*Don’t meet the minimum requirements? You still may be eligible: talk with an Orbit Home Loan specialist today. (CLICK)
See What You Qualify For