Non-QM Loans
What are Non-QM Loans?
Many homeowners lack the standard or continuous sources of income required by mortgage lenders. However, even if they are unable to qualify for conventional loans for a variety of reasons, these buyers may have sufficient income or assets to afford homeownership. In certain cases, a non-qualified mortgage (non-QM) could be the solution.
Following the 2008 mortgage catastrophe, federal regulators tightened borrower standards for mortgage loans that might be backed and purchased by government entities. Loans that meet all of the new standards are known as “qualified mortgages.” Any loan that does not meet such requirements is known as a “non-qualified mortgage,” or non-QM.
A non-QM mortgage loan qualifies borrowers by using alternative means of income verification. Even if these loans may not match the normal criteria, they are not always riskier loans. All borrowers must still verify their ability to repay the loan. Because non-QM loans require more labor to process, interest rates typically range between 0.5% and 5% higher, depending on the loan terms.
Non-QM Loan Benefits
- They provide mortgage funding for those with non-traditional income or financial situations.
- They allow for loans up to $2.5 million.
- Fixed-rate and adjustable-rate non-QM mortgages are available.
- Non-QM loans close just as quickly as conventional mortgages.
- They can be made to legal entities, like family trusts, instead of just individuals.
- No mortgage insurance is required on non-QM loans.
- They can be used to free up cash for investments.
- Non-QM cash-out refinance loans allow borrowers to take as much as $500,000 out in equity, depending on the situation.
What are the Non-QM Loan Requirements?
The documents required will vary greatly based on the financial situation of the applicant. In order to verify income, you can provide either personal and business tax returns or bank statements or investment account statements. In some cases, income verification is not even necessary. Credit scores and debt-to-income ratios will be factored in. Non-QM loans take a more holistic approach to an applicant’s financial situation though, rather than relying on a standard underwriting matrix.
Types of Non-QM Loans
Non-QM loans employ non-standard mortgage terms in order to help borrowers qualify. These include loan terms longer than 30 years, interest-only loans, higher debt ratios or alternate income verification methods. Non-QM loans can be used for primary residence mortgages, refinance loans, cash-out refinances, and investment property loans.
FAQ
A Non-QM loan is a mortgage that does not meet the standards set by the Consumer Financial Protection Bureau’s Qualified Mortgage (QM) rule.
Borrowers with unique financial situations, such as self-employed individuals or those with irregular income.
They can have higher interest rates and fees due to the increased risk for lenders.
Yes, refinancing options are available for Non-QM loans.
