Non-QM Loans
Many homebuyers do not have the standard or consistent forms of income that are typically required by mortgage lenders. Yet, while they may not be able to qualify for conventional loans for various reasons, these buyers may still have enough income or assets to afford homeownership.
In these situations, a non-qualified mortgage (non-QM) may be the solution. These loans use alternate methods to verify income and take a more holistic approach to your financial situation.
What is a Non-QM Loan?
In order to reduce risk of loss after the mortgage meltdown in 2008, federal regulators tightened borrower requirements on mortgage loans that could be backed and bought by government agencies. Loans that meet all the new criteria are called "qualified mortgages." Any loan that falls outside of those qualifications is called a "non-qualified mortgage" or non-QM.
A non-QM is a mortgage loan that uses alternate methods to verify income to qualify borrowers. Even though these loans do not meet the standard requirements, they are not necessarily riskier loans. All borrowers are still required to prove their ability to repay the loan.
Who Do Non-QM Loans Help?
Non-QM loans are often a good fit for those who have unique income situations:
- Self-employed borrowers: Individuals with irregular income from multiple sources who can qualify using bank statements rather than tax returns
- Borrowers with considerable assets: Buyers who prefer financing over cash purchases to maintain positive cash flow
- Real estate investors: Those who buy homes to flip for profit or turn into rental properties
- Foreign buyers: International borrowers without U.S. credit scores but with high income and substantial assets
- Buyers with blemished credit: Those with sufficient income but credit issues like prior bankruptcy or foreclosures
Documentation Requirements
The documents required vary greatly based on your financial situation. To verify income, you can provide personal and business tax returns, bank statements, or investment account statements. In some cases, income verification may not even be necessary. Non-QM loans take a more holistic approach to your financial situation rather than relying on standard underwriting criteria.
Because there is more work required to process non-QM loans, interest rates tend to be 0.5% to 5% higher than conventional loans, depending on the loan terms. However, for borrowers with unique situations, these loans provide access to homeownership that might otherwise be impossible.
Flexible Income
Qualify using alternative documentation instead of W-2s and tax returns
No Mortgage Insurance
Many non-QM loans do not require Private Mortgage Insurance (PMI)
Entity Lending
Loans can be made to legal entities like family trusts
Looking for a Non-QM Mortgage Loan?
Non-QM loans provide mortgage funding for those with non-traditional income or financial situations. They can be used for primary residences, refinancing, cash-out refinances, and investment properties. Fixed-rate and adjustable-rate options are available, and they close just as quickly as conventional mortgages.