Many homebuyers lack the standard or steady income typically required by mortgage lenders. Although they may not qualify for conventional loans due to various reasons, these buyers may still have sufficient income or assets to support homeownership. In such cases, a non-qualified mortgage (non-QM) could provide the ideal solution.
Non-qm loans
What is a Non-QM loan?
To reduce the risk of loss after the 2008 mortgage meltdown, federal regulators tightened borrower requirements for loans eligible to be backed by government agencies. Loans meeting these stricter criteria are called “qualified mortgages.” Those that fall outside these standards are known as “non-qualified mortgages” or non-QMs. A non-QM is a mortgage that uses alternative methods to verify a borrower’s income. While these loans don’t meet standard requirements, they aren’t inherently riskier. Borrowers must still demonstrate their ability to repay. However, because non-QM loans require more processing, their interest rates are typically 0.5% to 5% higher, depending on the terms.
Non-QM loans are often well-suited for individuals with unconventional income situations:
- Real estate investors
- Self-employed borrowers
- Borrowers with considerable assets
- Buyers with blemished credit histories
- Foreign buyers
