A non-qualified mortgage (non-QM) is any home loan that does not comply with the Consumer Financial Protection Bureau’s (CFPB) existing rules on qualified mortgages (QM). One of the main components of a QM loan is one’s ability to repay and the guidelines set by the agencies like Fannie Mae and Freddie Mac abide by these rules. Non-QM loans are typically for consumers with unique income qualifying circumstances that fall outside Fannie Mae and Freddie Mac guidelines.
Many people today have incomes that fluctuate, such as self-employed business owners, hospitality workers, and retirees. This is where non-QM fills the gap, by providing flexible underwriting guidelines for responsible consumers with unique income circumstances. Non-QM is also valuable for the consumer who has had a ding on their credit like bankruptcy or past delinquent debt that caused their credit score (FICO) to go down below agency guidelines.
Here are a few key things you need to know:
- To qualify for a non-QM loan we start by running all applicants through an automated underwriting system to ensure they do not qualify for an agency loan through Fannie Mae, Freddie Mac, or government-insured loans.
- Non-QM loans typically have interest rates that are, on average, 1.25% higher than QM loans.
- Alternative income verification methods are accepted, such as bank statements and asset depletion.
- Recent bankruptcy and foreclosure are OK.
- Loan amounts can go as high as $2.5 million.
- Loan-to-value can be as high as 90% on purchase loans.
- No income/asset investment property purchase at 80% LTV.
Non-QM loans fit a broad range of potential consumers and can be used to purchase primary, secondary, and investment properties. To ensure you qualify, it is best to consult a licensed loan officer, so they can assess your personal profile to determine if this product is right for you.