Non-QM Loans
What is a non-QM loan?
A non-QM loan, or a nonqualified mortgage, is a particular type of residential mortgage designed for borrowers who don’t meet the standards for a QM loan, or qualified mortgage.
Qualified mortgages are a category of home-purchase loan that includes requirements to protect lenders and borrowers from too much risk. The QM loan designation was created under the Dodd-Frank Act, passed in 2010 after the housing and subprime mortgage crisis. The requirements for a qualified mortgage have evolved since then, but they remain based on the assessment of a borrower’s ability to repay while limiting risky loan features.
Only QM loans can be insured, backed or guaranteed by the government-sponsored enterprises Fannie Mae or Freddie Mac, or the Federal Housing Administration, which makes them safer purchases for investors of mortgage-backed securities on the secondary market.
Who can benefit from a non-QM loan?
Borrowers who are ineligible for a qualified mortgage may benefit from a non-QM loan. Many lenders offer specialized types of non-QM products with various underwriting criteria.
Some borrowers have income sources that are more likely to fluctuate than borrowers with regular salaries or hourly paying jobs. These borrowers may have limited income documentation that may not pass QM standards, or traditional documentation may not accurately represent their full income.
Such Borrowers Include:
- Business owners
- Entrepreneurs and self-employed individuals
- Gig-economy workers
- Contract workers
- Retirees
- Foreign nationals
These borrowers may be better served through the use of a non-QM loan. Nonqualified mortgage lenders offer alternative methods of verifying income, such as bank statements or liquid assets. Some non-QM lenders also may be more flexible with a borrower in terms of credit scores.
What are some common uses for a non-QM loan?
Besides serving borrowers who may have nontraditional or fluctuating sources of income, non-QM lenders also may provide a range of other lending products to serve scenarios such as:
- Jumbo loans
- Nonprime loans
- Individual Tax Identification Number (ITIN) borrowers
- Bank-statement loans
- Stated income, verified asset (SIVA) loans
- Borrowers with high debt-to-income ratios
- Real estate investors