NON-QM Loans

A Non-QM (Non-Qualified Mortgage) loan is a type of mortgage that does not meet the standard criteria set by government-sponsored enterprises (GSEs) such as Fannie Mae or Freddie Mac. These loans fall outside the guidelines established by the Consumer Financial Protection Bureau (CFPB) for Qualified Mortgages (QMs).

The main difference between QM and Non-QM loans lies in the level of risk and borrower qualification standards. QM loans are designed to be safer for lenders and borrowers, with features such as a maximum debt-to-income ratio, limitations on fees, and certain underwriting requirements. On the other hand, Non-QM loans are more flexible but come with higher risk for both the lender and the borrower.

Here are some key characteristics of Non-QM loans:

  1. Alternative Documentation: Non-QM loans may allow alternative documentation forms, such as bank statements, to verify income instead of traditional W-2 forms or tax returns.
  2. Higher Debt-to-Income Ratios: Non-QM loans may accept borrowers with higher debt-to-income ratios than what is allowed for QM loans.
  3. Interest-Only Payments: Some Non-QM loans may offer the option for interest-only payments for a certain period, providing more flexibility for borrowers.
  4. Unique Property Types: Non-QM loans may be used for unique or non-standard property types that do not conform to traditional mortgage guidelines.
  5. Credit Issues: Borrowers with credit issues, such as recent bankruptcies or foreclosures, may be eligible for Non-QM loans when they would not qualify for QM loans.