What's a Non-QM Loan? Should I get a Non-QM Loan? 

• ByAHL Funding
what is a non-qm loan?

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There are qualified and non-qualified loans in the mortgage sector. While qualifying mortgages must fulfill particular lender and borrower requirements established by federal rules, non-qualified, also known as non-QM loans, offer additional flexibility and can be an excellent financial tool for some borrowers.

Are you a self-employed borrower? Do you operate your own business and have struggled to secure financing? If you’ve had trouble doing so, you might want to consider a non-qualified mortgage (non-QM) loan.

What is a Non-QM Loan?

A non-qualified mortgage (non-QM) is any house loan that does not adhere to the Consumer Financial Protection Bureau’s (CFPB) current qualified mortgage requirements (QM). Typically, this sort of mortgage loan accommodates people who cannot demonstrate their ability to make mortgage payments. Non-QM loans also cover borrowers with unusual financial circumstances.

These loans are fantastic solutions for anyone who falls into an “outside the box” circumstance that more specific lending services cannot accommodate.

Who are Non-Qualifying loans for?

Frequently, borrowers fall into one of three categories that are most suited to a Non-QM loan:

  • Borrowers who are self-employed and have a lot of income tax write-offs
  • Borrowers blemishes on their credit report
  • Investors looking to buy rental or vacation properties.

Self-employed borrowers may confront more complexities than regular wage-earners. A Non-QM loan might assist these borrowers qualify by accepting alternate documents, like a bank statement. Nearly 30% of Americans are self-employed. These same Americans will be required to present documents to qualify for a house loan two years later.

Understanding Non-QM Underwriting Guidelines

While there are no consistent underwriting rules for non-QM loans, lenders and brokers often specialize in specific non-QM products. Interest rates and loan conditions might vary greatly between lenders. CoreLogic data from 2019 showed the following common credit characteristics of closed non-QM loans:

  • The national average credit score was 760.
  • The average down payment was 21%.
  • In comparison to QM homeowners, the average DTI ratio for non-QM homebuyers was greater.

Furthermore, CoreLogic’s research uncovered the top three reasons borrowers chose a non-QM loan:

  • Documentation requirements that are more flexible
  • DTI ratio limits that are more lenient
  • Option to make solely interest payments

Is a Non-QM Mortgage Loan Right for You?

If you’re wondering whether a non-QM is safe, it’s important to understand that they are not the same as subprime mortgages. Today’s non-QMs, like qualifying mortgages, have their own set of rules. Aside from the loan documentation, the financing process is quite identical.

When you have the income to make regular, on-time mortgage payments, a non-QM is a suitable option. If you have any blemishes on your credit, or if you’re self-employed and your taxes don’t tell the entire story, a Non-QM loan could be a good fit for you. Non-QM mortgages are just as safe as other types of mortgages. A Non-QM mortgage loan is an excellent option if you require an alternative mortgage program because you do not meet the normal financing guidelines. 

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