Non-Qualified Mortgages for First-Time Homebuyers: A More Flexible Loan Option

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November 9, 2022

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Non-qualified mortgages are known for having more lenient, flexible qualifying criteria that give homebuyers more options. Newrez offers a few, including SmartSelf.

Non-QM for First-Time Homebuyers

Non-qualified mortgages are opening the door to homeownership for a variety of homebuyers – even first-time homebuyers. Non-qualified mortgages are non-traditional mortgages with more lenient qualifying criteria built to position homebuyers with an opportunity to own their homes. For some borrowers, a non-traditional mortgage is the only option that puts them on the path to homeownership. Let’s dive into this some more.

Qualified Mortgage Vs. Non-Qualified Mortgage

One way to understand the difference between qualified and non-qualified mortgages is to call out the differences and compare.

Remember: Non-qualified mortgages are not backed by government agencies (like FHA, VA, Fannie Mae™, Freddie Mac™, etc.). On the other hand, qualified mortgages conform to and abide by regulations and guidelines set by government agencies.

Translation: With a non-QM, once your ability to repay your loan has been proven, your lender is legally protected in the event that you default on your loan.

DEBT

Qualified mortgages typically require a debt-to-income ratio (DTI) of 43% or less.

Non-qualified mortgages are typically more flexible with debt-to-income ratios (some of our non-QMs accept up to 50% DTI).

INCOME

Qualified mortgages require income verifications like W-2s, tax returns, and paystubs.

Non-qualified mortgages accept alternative income documentation like bank statements, 1099s, and asset evaluations.

LOAN FEATURES/TERMS

Non-qualified mortgages offer more flexible features and loan terms when compared to traditional mortgage options. With interest-only options, homebuyers have access to more financing solutions.

Both types of mortgages are good options; the good option for you depends on a variety of factors that lenders consider when reviewing your loan application: income, credit, debt, assets, goals, and more.

Non-QMs at Newrez: Smart Series

At Newrez, we offer a full suite of non-QMs comprised of three key loan types, each designed to help borrowers achieve their homeownership goals. In our Smart Series, SmartEdge is a product that is friendly towards borrowers with less-than-perfect credit, SmartVest is made for seasoned real estate investors seeking to build out their portfolio, and SmartSelf is designed for borrowers who could benefit from access to a financing solution with alternative income documentation.

A Non-QM for First-Time Homebuyers

One of the best things about our Smart Series is that we take into account your likelihood to repay the mortgage by looking at your finances with a wider lens than QMs.

Let’s run through an example scenario:

Keegan Brown is an independent sales representative who works for a major fishing gear company. His territory spans up and down the East Coast. After nearly 6 years of introducing the line to new accounts, including major big box retailers, his commissions grew, allowing him to save close to $750,000 for his dream home. Tired of paying his landlord’s mortgage, he met with a loan officer at Newrez who recommended SmartSelf to finance his million-dollar home. With fluctuating income due to his commissions, along with needing to submit 1099s instead of W-2s for underwriter review, this financing solution made the most sense for him.

Above scenario is a fictional dramatization.

SmartSelf is a jumbo-sized loan designed with first-time homebuyers in mind. As a first-time homebuyer, it allows you to borrow up to $1.5 million when other conditions and requirements are satisfied. Don’t worry too much about this now, as one of our non-QM certified loan officers can walk you through the details.

 

Who Could Benefit from SmartSelf?

An ideal loan for a self-employed borrower or business owner who may not qualify for a mortgage using tax returns for income verification, SmartSelf offers expanded ways to prove your ability to repay the mortgage (compared to the more restrictive qualifying criteria of traditional loans).

While traditional mortgages typically require W-2s and stricter income verification requirements, SmartSelf is built with a bit more flexibility. This financing solution allows you to qualify using bank statements, 1099s, or assets with an asset evaluation. With self-employed borrowers, it’s not uncommon to see that income has fluctuated or deposited into the bank in lump sums, and that’s why we have options that work with a variety of careers, income sources, and jobs.

Self-Employed Borrowers Can Include:

  • Business owners
  • Buyers who live off investments, or have high assets and low income
  • Salon owners
  • Freelancers
  • Contractors
  • Independent sales reps
  • Entrepreneurs
  • Hospitality workers
  • Actors
  • Artists
  • Musicians
  • And more 

Non-Qualified Mortgage Loan Approval Process

The non-qualified mortgage review and approval process looks similar to that of traditional loans. What sets Newrez apart from other lenders is our specialized loan officers and operations team. To ensure you’re in the best hands possible throughout your journey to closing, we have non-QM certified loan officers equipped to guide you and answer questions. On top of that, we have experienced non-QM underwriters trained for our Smart Series loans. On the back end, we’ve implemented user-friendly systems and technology to make the steps easy on you, from checking the loan status to documentation upload.

Next Steps:

The key takeaway here is that as a first-time homebuyer, there is a variety of loan programs available. Whether a non-qualified mortgage like SmartSelf is the best solution for you and your homeownership goals should be determined by one of our mortgage professionals. Ready to find out more? We’re always available to help you!

Why Newrez?

Newrez believes the lending business shouldn't just be about home loans - it should be about homeowners. That's why our employees get to know our customer's real needs, through final closing, and beyond.

  • Industry leading loan options

  • Simple pre-qualifications and application processes

  • Loans for everyone, from seasoned investors to first-time buyers

  • Putting power back into underserved communities