A non-qualified mortgage (non-QM) is any home loan that does not comply with the Consumer Financial Protection Bureaus’ (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 consumers who have 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 loans through Fannie Mae, Freddie Mac, or government insured loans.
- Non-QM loans typically have interest rates 1.25% higher than QM lOANS
- Alternative income verification methods are accepted like bank statements and asset depletion.
- Recent bankruptcy and foreclosure are OK.
- Loan amounts can be as high as $2.5 million.
- Cash-out goes as high as $500,000.
Non-QM loans are well suited to a broad range of potential consumers and can be used for rate/term refinance and cash-out loans. 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.