Introduction to Non-QM Loans (For Loan Officers & Support Staff)

Pretty much every lender will agree that mortgages are not one-size-fits-all. Not every one of your borrowers can claim a qualified mortgage. But do you simply pass up an opportunity of closing just like that? In such a scenario, a Non-Qm loan is your best bet!

What Exactly Is a Non-QM Loan?

A Non-QM loan, also known as a non-qualified mortgage, is a type of mortgage loan that allows you to qualify using methods other than the traditional income verification required for most loans. Bank statements and the use of your assets as income are common examples. Non-QM loans provide real estate investment opportunities to a broader group of people due to their more flexible qualification requirements.

Qualified Mortgage vs. Non-QM

Non-QM loans are a great alternative to qualified mortgage (QM) loans. A Non-QM loan is one that does not have to follow the federal government’s and the Consumer Financial Protection Bureau’s (CFPB) guidelines for qualified mortgages.

Non-QM Mortgage Benefits

Non-QM loans are favorable to borrowers for many reasons, including:

• Greater underwriting flexibility
• No personal income calculations are required
• No job history is required (in some cases)
• As little as 10% down required
• No reserves required (in some cases)
• Credit scores as low as 620 allowed (580 w/ compensating factors)
• Low debt-service-coverage ratio (DSCR) on investment properties
• Counts rental income (such as Airbnb & VRBO)

Non-QM Mortgage Risks

The biggest risk of a Non-QM mortgage is being unable to repay the loan if your financial circumstances change dramatically. This is especially concerning if there is another economic downturn. Defaulting on any debt, however, is always a danger.

However, Non-QM loans provide a middle ground for borrowers who would otherwise have no alternatives or be stuck with unreasonably high-interest rates that significantly raise the loan’s expense by keeping fair lending requirements while preserving flexibility.

To Whom Should You Offer A Non-QM Loan?

If your prospect doesn’t fit the mold of the traditional borrower, but they’re confident they have the means to repay a mortgage, you should consider offering them a non-QM loan. If they are among one of the following groups, a non-QM loan might be for them:

• Self-employed borrowers
• Real estate investors
• Small to midsize business owners
• Foreign nationals
• Borrowers with substantial assets
• Those who have had a recent credit event (bankruptcy, short sale, or foreclosure)
• Retirees interested in purchasing a second home that will not be their primary residence
• “Subprime” or “Non-Prime” borrowers who just barely miss the requirements for a QM loan and don’t want to postpone

Learn More About Mortgage Preparedness

Whether you’re a new broker or an established one considering diversifying their offerings, your home-buying journey will be much more successful with a bit of preparation. Discover more tips from experienced loan officers about how to navigate the home-buying process when it comes to Non-QM loans.
Want to add Non-QM loans for your customers but are unsure where to start? Visit our broker approval page to apply to become a broker partner today!