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: