Non-QM Loans: What is a Non-Qualified Mortgage?
A non-QM loan, or non-qualified mortgage loan, is meant for homebuyers who may not qualify for a qualified loan. These buyers may be missing documents. They may be self-employed. Or they may have potential issues with their credit but still want to achieve the goal of homeownership.
Continue reading to learn more about non-QM loans and the key differences and benefits. You can also start your application and begin your journey to a new home.
What is a non-QM loan?
A non-QM loan is a type of mortgage loan that does not meet the criteria for a qualified mortgage (QM) as set forth by the Consumer Financial Protection Bureau (CFPB).
Non-QM loans are not subject to the same standards and regulations as qualified loans. Qualified loans are intended to ensure that borrowers have the ability to repay their loans. Non-QM loans may have different underwriting criteria.
These types of loans may allow for higher debt-to-income ratios or considering alternative documentation of income. They may also have higher interest rates or fees to offset the increased risk for the lender.
Non-QM loans may be offered to borrowers who do not meet the strict requirements of a qualified loan. For example, homebuyers with self-employment income, high net worth or a history of credit issues may not qualify for certain loan types. For this reason, borrowers should carefully consider the terms and potential risks before choosing this loan type.
How do non-qualified mortgages work?
Non-qualified mortgages (non-QM) work differently from qualified mortgages (QM). QM loans are subject to strict underwriting criteria set by the Consumer Financial Protection Bureau (CFPB). These restrictions ensure that borrowers can repay their loans. In contrast, non-QM loans have more flexible underwriting criteria and are typically offered to borrowers who do not meet the strict standards of a QM loan.
Non-QM loans may have higher interest rates and fees because they are considered riskier than QM loans. However, they may also offer benefits such as lower down payment requirements or more lenient credit score requirements. Non-QM loans may also consider alternative sources of income, such as self-employment income, rental income or investment income that may not be counted towards a borrower's income for a QM loan.
What’s the difference between a non-QM loan and a DSCR loan?
Non-QM loans and DSCR (Debt Service Coverage Ratio) loans are both types of mortgage loans, but they are designed for different types of borrowers and have different underwriting standards.
Non-QM loans are for borrowers who do not meet the underwriting standards for traditional qualified mortgages. These borrowers may have non-traditional income sources or have a high level of debt compared to their income, making it difficult to qualify for a QM loan.
On the other hand, DSCR loans are designed for real estate investors who want to finance income-producing properties. DSCR stands for debt service coverage ratio, which is a measure of the property's ability to generate enough income to cover its debt service payments. DSCR loans require borrowers to meet a minimum DSCR threshold, typically around 1.00, which means that the property's net operating income must be at least 100% of its debt service payments. DSCR loans are considered to be a more conservative form of lending because they focus on the property's income-generating ability rather than the borrower's creditworthiness.
In summary, non-QM loans are designed for individual borrowers who do not meet the underwriting standards for traditional mortgages while DSCR loans are designed for real estate investors who want to finance income-producing properties based on the property's income-generating ability.
Who qualifies for a non-QM loan?
Non-QM loans are generally designed for borrowers who do not meet the strict requirements of a qualified mortgage (QM). These loans are often used by self-employed individuals, those with fluctuating incomes or borrowers with credit issues. However, the specific requirements for a non-QM loan may vary depending on the lender and the type of loan being offered.
Buyers who benefit may include those with non-traditional income sources:
- Self-employed/contractors with 1099, personal or business bank statements and P&L (Profit & Loss) statement in lieu of tax returns
- Property investors with cash-flow from rental income
- High-net worth borrowers with substantial assets (stocks, bonds, funds from large settlements, savings, inheritance or retirement)
- ITIN (Individual Taxpayer Identification Number) borrowers with 1099, personal or business bank statements
Here are some general criteria that may be considered for a non-QM loan:
General criteria used to qualify for a non-QM loan
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Credit Score
While non-QM loans may be offered to borrowers with lower credit scores, some lenders may have minimum credit score requirements. -
Debt-to-income ratio
Non-QM loans may allow for higher DTI ratios than QM loans. However, lenders will still want to ensure that the borrower has the ability to repay the loan. -
Income verification
Non-QM loans may allow for alternative methods of income verification, such as bank statements, tax returns or asset-based income. -
Employment history
Lenders may consider a borrower's employment history and stability in determining their ability to repay the loan. -
Property type
Non-QM loans may be available for unique or non-traditional properties. Investment properties, mixed-use properties or properties in need of repair may be considered for a non-qualified mortgage. Non-QM loans may have higher interest rates and fees than other mortgage types. This is due to the higher risk associated with non-QM loans. Borrowers should carefully consider the terms and potential risks of a non-QM loan before choosing this type of loan.
Where can I apply for a non-QM loan?
We can help start you on the path to a non-QM loan today. Begin by applying online and our team will help you through the mortgage process and provide the support you need.
_Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact OriginPoint LLC fka Guaranteed Rate Affinity, LLC (“OriginPoint”) for current rates and for more information. All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. OriginPoint does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by OriginPoint. OriginPoint its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. OriginPoint does not provide tax advice. Please contact your tax adviser for any tax related questions.
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OriginPoint's Same-Day Mortgage (aka “FastTrack”) promotion offers qualified customers who provide certain required financial information/documentation to OriginPoint within 8 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. For purposes of this offer, documents provided after 1 pm local time or on a weekend or company holiday will be deemed submitted the next business day. OriginPoint cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. OriginPoint reserves the right to revoke this approval at any time if there is a change in your financial condition or credit history which would impair your ability to repay this obligation. Read and understand your Loan Commitment before waiving any mortgage contingencies. Borrower documentation and Intent to Proceed must be signed within 8 business hours of receipt. Not eligible for all loan types or residence types. Minimum down payment requirements apply. Self-employed borrowers and Co-borrowers are not eligible. Not all borrowers will be approved. Borrower's interest rate will depend upon the specific characteristics of borrower's loan transaction, credit profile and other criteria. Eligible borrowers who successfully provide all required documentation within 8 business hours will receive a $250 Closing Cost Credit applied at closing, no cash value, and may not be combined with any other Lender promotions, discounts, or concessions. Not available in all states. Restrictions apply. Visit OriginPoint.com/same-day-mortgage for terms and conditions.
**Eligible borrowers must qualify for a "Clear to Close Loan Commitment" ("CTC”). OriginPoint cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. CTC is subject to certain underwriting conditions, including clear title and no loss of appraisal waiver, amongst others. Not eligible for all loan types or residence types. Minimum down payment requirements apply. Property must be eligible for an Appraisal Waiver and borrower must opt in to AccountChek for automated income and asset verification. Self-employed borrowers and Co-borrowers are not eligible. Not all borrowers will be approved. Restrictions apply.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact OriginPoint for current rates and for more information. All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. OriginPoint LLC fka Guaranteed Rate Affinity, LLC does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by OriginPoint LLC fka Guaranteed Rate Affinity, LLC. OriginPoint LLC fka Guaranteed Rate Affinity, LLC its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. OriginPoint does not provide tax advice. Please contact your tax adviser for any tax related questions.
