Non - QM Loans
What is a Qualified Mortgage or QM Loan?
Before we dive into Non-Qualified (Non-QM) loans, we first need to explain what a qualified mortgage (QM) is. A qualified mortgage (QM loan) is a loan that has set features to gauge a potential home buyers’ ability to repay their loan. Conventional, FHA, USDA, and VA loans are types of QM loans home buyers may be familiar with.
After the housing crisis, the Consumer Financial Protection Bureau (CFPB) created the “ability-to-repay” rule requiring a mortgage lender to document your income, employment, assets, income, and debt before lending. Additionally, there are restrictions on risky loan features, including loan terms that exceed 30 years, interest-only payments, balloon payments, and more. The CFPB also put a cap on an allowable Debt-to-Income (DTI) ratio. The general rule for a Qualified Mortgage is that a borrower’s DTI ratio must not be higher than 43%.
What is a Non-Qualified Mortgage or Non-QM Loan?
Now that we’ve answered what a Qualified Mortgage is, it’s time to find out what a Non-Qualified Mortgage is. A Non-Qualified Mortgage (Non-QM) is any home loan that doesn’t comply with the Consumer Financial Protection Bureau’s existing rules on Qualified Mortgages. Usually this type of mortgage loan accommodates people who are not able to prove they are capable of making the mortgage payments. Examples of Non-QM borrowers includes self- employed home buyers who are qualifying off of personal or business bank statements instead of tax returns, shorter wait periods to obtain financing after a foreclosure, bankruptcy or short sale.
A Bank Statement Loan is simply any loan product that doesn’t meet the standards of a qualified mortgage. The major difference is that Non-QM loans have more flexibility and expanded criteria in underwriting guidelines. These loans will likely have a higher mortgage rate due to risk, than your average 30 year, conventional fixed-rate loan.
Who can benefit from a Non-QM Loan?
These loans are for borrowers that can be perceived as too risky. Here are some types of borrowers that could benefit from a Non-QM Loan:
Self-Employed Borrowers: They may have a sporadic income or multiple income opportunities which can make it hard to get a mortgage. Those who are self-employed borrowers are able to change to Bank statement loans, which are based on their income and liquid assets.
Real Estate Investors: Real Investors can be exempt from the ability-to-repay rule because they are purchasing investment properties.
Prime Borrowers: They are borrowers who have excellent credit, but want a loan with riskier features including interest-only payments or if they have a high DTI.
Near Prime or Non-Prime Borrowers: They are borrowers that have lower credit scores or may have filed for bankruptcy. These types of borrowers would need more money down and there may be higher standards than a regular QM loan to help eliminate risk.
Foreign Nationals: They are non-resident borrowers looking to purchase a home in the U.S. and wouldn’t qualify for a traditional mortgage due to a lack of a U.S. credit score. Lenders tend to use international credit scores, reports, and letters from creditors to help foreign nationals and their families qualify for a Non-QM Loan. Also, On Q offers our website, tools, and critical loan documents in 3 different languages including Spanish, Russian, and Simplified Chinese as part of our Multicultural platform.
What are the benefits of a Non-QM Loan?
Non-QM loans have a variety of benefits. The main benefit being that it helps a wider range of home buyers without traditional sources of income make their dream of home ownership possible. These potential home buyers may invest their money into fixing and flipping homes, own their own business, do freelance or contract work, and even want a loan with riskier loan qualities.
These loans help a wider variety of borrowers that don’t fit the criteria of QM loans. On Q Financial can help a variety of borrowers with different borrowing criteria achieve their dreams of home ownership. Contact your local On Q Mortgage Consultant today if you think a Non-QM loan could be right for you!
Is a QM or Non-QM Loan better?
Both QM and Non-QM loans have their advantages for certain borrowers. QM loans are great for borrowers who have a good credit score, steady income, and have a low debt-to-income ratio.
Non-QM loans are great for borrowers who don’t fit the standard mold. They could be self-employed, real estate investors, or even foreign nationals looking to buy a home in the United States. These loans are great solutions for anyone who may have a hard time finding a loan because of a variety of factors. If you’re interested in starting your journey to home ownership, contact an On Q Mortgage Consultant today!
Contact Your Local On Q Mortgage Consultant Today!
Disclaimer: On Q Financial, Inc. is an equal housing lender. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to lend. Some restrictions may apply. Loan approval is subject to applicant’s qualification for a loan program. On Q financial does not guarantee that each applicant will receive a loan.OnQ1113190681Y00000771cT