Non-QM Loans After Bankruptcy and Foreclosure

This guide covers non-QM loans after bankruptcy and foreclosure. Let’s first discuss the definition of qualified mortgages, or QM loans, and lenders offering non-QM loans after bankruptcy and bankruptcy. Lenders offering non-QM loans after bankruptcy and foreclosure are residential portfolio mortgage lenders. Not all lenders offer non-QM home loans. Michael Gracz, a senior mortgage loan officer at Mortgage Lenders for Bad Credit Mortgage Group, is one of the few national lenders offering non-QM loans after bankruptcy and foreclosure:

A qualified mortgage or a QM loan, simply means the loan must follow a set of standards put in place by the consumer financial protection Bureau, or CFPB. A QM loan must document the consumer is able to repay the loan; it must follow the ATR rule.

The loan terms must be safe for the borrower, and lastly, the terms of the loan need to be easy to understand. These loans cannot have any harmful loan features such as balloon payments, negative amortization, terms over 30 years, or interest-only payments. In this article, we will cover and discuss lenders offering non-QM loans after bankruptcy and foreclosure.

What Are NON-QM Loans?

A NON-QM loan is a loan that does not have to follow the agency guidelines.

• Such as Fannie Mae, Freddie Mac, VA, and FHA guidelines
• These loan instruments are able to operate outside of your typical mortgage lending guidelines put in place
• Even the consumer financial protection bureau has stated if a loan is not a QM loan, it can still be an appropriate loan

There are many different NON-QM loan products available, such as the following:

• bank statement loans
• asset depletion loans
• foreign national loan programs
• other types of alternative financing

These loans are available for owner-occupied properties, second homes, and even investment properties.

Non-QM Loans After Bankruptcy and Foreclosure

Recovery Timeline Related to Bankruptcy and Foreclosure

Types of Bankruptcy and their Associated Waiting Periods

Chapter 7 Bankruptcy

• Conventional Loans: Four-year waiting period after the discharge date.
• FHA Loans: 2 years waiting period after the discharge date.
• VA Loans: 2 years waiting period after the discharge date.
• Non-QM Loans: These can be as short as one day to 1 year with higher rates.

Chapter 13 Bankruptcy

• Conventional Loans: 2 years from the discharge date with a steady payment history.
• FHA Loans: Possible during active bankruptcy with court approval.
• VA Loans: 1 year of payments required.
• Non-QM Loans: These are more lenient, potentially immediate options with an explanation.

Recovery Timelines After Foreclosure

Waiting Periods Related to Standard Loan Programs

• Conventional Loans: 7 years post-completion of foreclosure.
• FHA Loans: 3 years post-completion of foreclosure.
• VA Loans: 2 years post-completion of foreclosure.
• Non-QM Loans: These can be as short as 1 to 2 years with higher rates.

Key Features of Non-QM Loans After Bankruptcy and Foreclosure

• Payment is contingent on higher interest rates.
• Lower available credit requires a down payment.
• Stricter documentation.
• Underwriting is more tailored.
• Focus on the current rather than the future financial condition.

Factors Expected to be Considered for Qualification

• Recent credit rehabilitation.
• Maintained income
• Debt to income ratio
• Describes past financial difficulties

Starting Over: Improving a Credit Rating

• Non-QM Loans for Recovery

Bank Statement Loans

• Twelve- to twenty-four-month bank statements may serve as proof of income.
• Suitable for self-employed individuals and those with complex earning structures.
• There is not as much focus on traditional employment verification.

Asset Depletion Loans

• Must have total liquid assets to qualify.
• Assets are divided by loan term to prove repayment capacity.
• It is helpful for people with considerable savings.

Stated Income Loans

• Less verification is needed.
• Higher interest rate.
• Affordability assessment is the core focus.
• The usually smaller-sized loan requires a higher initial installment.

Non-QM Portfolio Loans

• Owned by individual lenders.
• More flexible underwriting.
• Tailored to the specific situations of borrowers.

Non-QM Loans after Bankruptcy: Strategies for Rebuilding Credit

• Quick Actions
• Obtain credit reports
• Incorrectly reported information should be disputed
• Open new credit accounts
• Use less than 30% of the total credit limit
• Pay on time and regularly

Non-QM Loans After Bankruptcy: Best Credit Rebuilding Strategies

• Secured credit cards
• Credit-builder loans
• Gained by being an authorized user on stable accounts
• Set aside emergency funds

Compliance

• Loan documentation requirements
• Detailed letter explaining bankruptcy/foreclosure circumstances.
• Proof of financial recovery.
• Verification of present income.
• Recent credit report.
• Recent bank statements.
• Tax paperwork.
• Documentation of assets.

Expectations of Interest Rates

Comparison of Rates

• Standard Loans: 6%- 7% (by 2024)
• Non-QM Loans After Bankruptcy: 8% – 12%

Rates become better with

• Improvement of credit score
• Steady income.
• Lowered debt-to-income ratio.
• Increased payments towards non-rolling debt.
• Larger down payments on loans.

Guidance for Choosing a Lender

Recommended Lenders: Non-QM Loans After Bankruptcy

• Focus on lending to bankrupt borrowers.
• Disclosure of all fees.
• Non-standardized underwriting.
• Positive reviews from past clients.
• Relaxed borrowing terms.
• Full disclosure of all available loans.
• Clear policy guidelines.

Long-Term Fiscal Strategy

Advanced Strategies

• Non-QM loans should be viewed as a last resort.
• It should only be used once other, more effective options have been exhausted.
• Work on improving credit scores.
• Switch to less expensive loans whenever possible.
• Devise a budget plan and stick to it.
• Establish an emergency savings account.
• Reliability makes financial discipline easier
• Constantly check your credit score.

While non-QM loans can facilitate access to mortgages following economic strains, they require meticulous strategy, increased expenses, and a sustained focus on remedial measures.

Types Of Borrowers Benefiting From Lenders Offering Non-QM Loans After Bankruptcy

Non-QM loans are available for anybody who would like to use one, but they are really geared towards self-employed borrowers and borrowers who have recently had financial struggles. Many self-employed borrowers find themselves not able to qualify for a home they would like to live in due to tax write-offs or deductions. The bank statement loan program could be a life-changing loan for their family. Many Americans faced financial hardships throughout the late 2000s and early 2010s. John Strange, a senior mortgage loan originator at Mortgage Lenders for Bad Credit, says the following about the waiting period after bankruptcy and foreclosure on government and conventional loans.

A large number of these people cannot buy homes with FHA or conventional loan programs. This is usually due to seasoning requirements from bankruptcies (backlink BK blog), foreclosures, short sales, or even a deed-in-lieu.

There are loan programs available one day after a foreclosure! There is light at the end of the tunnel Thousands of Americans cannot refinance their homes due to late payments, or move into a bigger home due to a few late payments I would strongly encourage those to check out a NON-QM loan product. These loans are not permanent! . Most NON-QM loans do not have a prepayment penalty. It is very common for a self-employed borrower to buy a home with a NON-QM loan and over the next few years file taxes with fewer deductions, and then refinance into an agency loan. I like to call this a Band-Aid loan

For example, here is a case scenario:

• if you had a foreclosure 6 months ago
• but do not want to wait for the three-year seasoning requirement before buying a home with an FHA loan
• or even a four- to seven-year seasoning requirement for a conventional loan
• they can use the NON-QM loan and complete a refinance once seasoning timeframe has elapsed

This is the most common use for NON-QM loans.

What can I expect during the NON-QM mortgage process?

The NON-QM mortgage process is very, very similar to a traditional standard mortgage process. Borrowers complete a full loan application. Borrowers still need to pull a tri-merged credit report, provide assets for the down payment, and follow debt-to-income ratios. Borrowers will submit loan documents to the loan officer just as they would for a QM loan. At this point, the loan will get pre-approved. Once approved, borrowers can find a home, an appraisal is completed. Mortgage applicants files will go through an underwriting process to confirm borrowers fit into the NON-QM loan program. The closing and funding of a NON-QM loan mirrors the closing and funding of a traditional everyday mortgage. Non-QM loans still must follow all TRID timeframe requirements and disclosures. A NON-QM refinance will have the three-day right to rescission time requirements before funding on all owner-occupied properties.

What Is Needed To Get Started With Lenders Offering Non-QM Loans

A NON-QM loan will require a 10% to 20% down payment. The down payment required on a home purchase depends on the borrower’s credit scores: The credit score requirement is much more relaxed than even an FHA loan. Loan programs are available with credit scores down to 500. Depending on the loan product that best fits the borrower’s situation, the mortgage applicant will need to provide certain documentation. Such as using business bank statements to qualify for income, borrowers will need to send in 24 months of the business account. Borrowers using personal bank statements only need 12 months of personal statements. Many self-employed borrowers love the one-year tax return loan program (a blog to come on this topic). This program is able to calculate borrowers income based on one year of IRS tax returns

Please reach out to Mike Gracz at (800) 900-8569 of Mortgage Lenders for Bad Credit to discuss what programs are available and which one will best fit your situation.