What is a Non-QM loan?

Non-QM (or non-qualified mortgage) loans are technically conventional loans, but they are not required to meet standard government guidelines. Non-QM loans encapsulate a wide variety of mortgage types, including bank statements loans, DSCR (investor no doc loans), asset depletion loans, Primary residence no doc loans, interest only loans, and more. Homeowners typically use non-QM loans to take advantage of their more flexible income and loan requirements. In fact, non-QM loans can often be a better option for self-employed borrowers or borrowers seeking a loan on their investment properties.

Types of non-QM loans

While many types of non-QM loans exist, the most popular ones are:

• Bank statement loans – This is perfect for self-employed borrowers. With conforming conventional loans, self employed borrowers have to supply their tax returns in order to qualify.
• Borrowers who utilize a lot of write-offs to minimize their tax payments, to minimize their tax payments often times qualify with less income than they actually have. Rather than going off tax returns, bank statement loans use your bank statement cash flow (deposits) from either the last 12 or 24 months to look at the income you actually receive, and qualify you based on that.
• DSCR loans – DSCR stands for debt service coverage ratio. Rather than qualifying you on your existing income and debts, this type of loan qualifies you solely on the rental income that your investment property generates. This is perfect for borrowers wanting to purchase or refinance an investment property who may feel daunted by the amount of paperwork that would normally be required of a conforming conventional loan.
• Asset depletion loans – If you have ample money in the bank or in investments, you may find an asset depletion loan to be the best for your individual situation. This type of loan takes the money in your asset account and uses it as your income. There is no need to provide years of bank statements or tax returns with this loan, you qualify off the two most recent bank or asset statements.
• Foreign National Loans – While only US residents can qualify for conforming loans, foreign nationals can still qualify for a mortgage in the US with a non-QM loan.

Many non- QM loans exist to meet your unique needs, so please reach out to one of our team members today to see what would be the best fit for you and your mortgage needs.

Non-QM loan pros

Here are the Non-QM loan pros.

• Flexibility – There are so many lenders and loan programs out there for qualified homeowners and homebuyers. Non-QM loans are even more flexible that other mortgages in terms of the required documentation, loan limits, loan terms, and repayment types.
• Credit requirements are more relaxed – Because these loans to not adhere to typical lending guidelines, each loan is assessed individually, rather than having to follow stricter conventional standards. This means that the underwriters working on your loan treat your application as unique and take all aspects of your loan into consideration when making a credit determination.
• Programs are also available for foreign nationals and borrowers with a recent bankruptcy or foreclosure.
• Great for self-employed borrowers, borrowers with multiple properties, or borrowers wanting to close in an LLC – the more lenient requirements make it so that you don’t have to get bogged down in some of the documentation required of a conforming conventional loan.

Non-QM loan cons

Here are the Non-QM loan cons.

• Higher interest rates – Non-QM loans typically have higher interest rates due them being considered higher risk when compared to conforming conventional loans.
• Down payments are generally larger – While conforming conventional loans typically only require 3-5% down payment, non-QM lenders may require higher down payments to qualify.
• May contain ‘risky’ loan features – Some non-QM programs may contain what are called ‘risky’ loan features. This includes interest-only loans and loans with negative amortization.
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  Working with your loan officer or mortgage broker, who has extensive experience with all loan types, can help determine if these products are best suited for your unique needs.