Posted by & filed under Buying.

irresponsible lendingIrresponsible lending is back.  It is back in real estate and I am sad to say that my Board of Realtors had a seminar on it today.  I did not go and neither should you.

What’s a QM

QM stands for Qualified Mortgage.  This came about in January of 2015 due to post Recession legislation.

It’s a very good thing because it protects consumers as well as banks.  Banks must now keep 5% of the mortgages that they lend.

Qualified mortgages are the only exception to this rule because they have stricter requirements.  As a result they have a much lower risk of default.

The goal is to ensure that borrowers are not treated unfairly and banks can reasonably expect the mortgage to be paid.  QM mortgages have, for example, limits on fees banks charge and how much debt to income is allowed.

Non QM Loans

Non QM loans exceed QM lending requirements.  These are loans tailored for people with bad credit.  Such borrowers have lower credit scores and higher debt to income ratios.

They are a good idea if you are self employed.  Self employed people don’t show enough income on their tax returns due to write offs.  As a result their debt to income ratios are high.  Prudently used this can be a great idea and not irresponsible.

While helping self employed people is positive, allowing others to get a mortgage with unsafe debt levels and bad credit is not.

Don’t Do This

Irresponsible lending is disastrous.  Because it’s so enticing, people fell for it and were destroyed.  They lost their savings, their homes and went bankrupt.  There are a lot of tenants today who will never be homeowners because of it.

Do not buy a home if you can’t afford it.  Please do not allow yourself to be fooled into thinking that a non QM mortgage is “an opportunity for the American Dream” because it isn’t.

To know how to do it right, go to the Buyers section on my website.  I wrote this for you – to teach you how to do the best for yourself.  If you have questions or want to start looking for a house, call or text me at 201-741-8490.

 

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