Non-QM Loans, or Non-Qualified Mortgage loans, refer to a category of mortgage loans that do not meet the specific criteria for Qualified Mortgages (QM) as outlined by the Consumer Financial Protection Bureau (CFPB). These loans are typically designed for borrowers who have unique financial situations that make it challenging to meet the strict requirements of traditional QM loans. Non-QM loans are often ideal for self-employed individuals, real estate investors, or borrowers with non-traditional income sources, such as freelancers or contractors. They provide greater flexibility in underwriting standards, allowing for alternative documentation methods to verify income, making it possible for borrowers outside the conventional loan qualification box to secure financing. However, due to the increased risk involved, Non-QM loans often come with slightly higher interest rates or down payment requirements.
Non-QM
Non-QM Loans
Non-QM Loans refers to a category of mortgage loans that do not meet the criteria for Qualified Mortgages (QM) as defined by the Consumer Financial Protection Bureau (CFPB). These loans are often tailored for borrowers with unique financial circumstances, such as self-employed individuals, investors, or those with non-traditional income sources.
Requirements
- 12-24 months of bank statements.
- Asset-Based Loans.
- Stated Income/Stated Asset (SISA) Loans.
- Foreign National Loans.
Benefits of non-QM loans
01.
Flexibility in Qualification
Non-QM loans provide flexibility in qualifying criteria, allowing borrowers with unique financial situations or non-traditional income sources to obtain mortgage financing.
02.
Alternative Income Documentation
Non-QM loans accept alternative forms of income documentation, such as bank statements, asset depletion, or self-employment income verification, which may not be accepted by traditional QM loans.
03.
Credit History Consideration
Non-QM loans may consider a broader range of credit histories, including borrowers with past credit challenges, such as bankruptcies, foreclosures, or late payments.
01.
Flexibility in Qualification
02.
Alternative Income Documentation
03.
Credit History Consideration
Learn more about Non-QM loans
Non-QM (Non-Qualified Mortgage) loans are a type of mortgage that doesn’t meet the strict guidelines set by the Consumer Financial Protection Bureau (CFPB) for Qualified Mortgages (QM). They are designed to accommodate borrowers with unique financial situations, such as self-employed individuals, real estate investors, or those with irregular or non-traditional income streams. Unlike conventional loans, Non-QM loans offer more flexible criteria for qualification, which can include using alternative methods to verify income, such as bank statements or asset-based lending. These loans provide a valuable solution for borrowers who may not meet the standard criteria for traditional mortgages but can still demonstrate financial stability and the ability to repay the loan.
Benefits of non-QM loans
1. Flexibility in Qualification
- Non-QM loans provide flexibility in qualifying criteria, allowing borrowers with unique financial situations or non-traditional income sources to obtain mortgage financing.
- Borrowers who may not meet the stringent requirements for credit scores, debt-toincome ratios, or employment history of QM loans may still qualify or non-QM loans.
2. Alternative Income Documentation
- Non-QM loans accept alternative forms of income documentation, such as bank statements, asset depletion, or self-employment income verification, which may not be accepted by traditional QM loans.
- This flexibility benefits self-employed individuals, freelancers, gig economy workers, and borrowers with fluctuating income.
3. Credit History Consideration
- Non-QM loans may consider a broader range of credit histories, including borrowers with past credit challenges, such as bankruptcies, foreclosures, or late payments.
- Borrowers with credit issues or non-traditional credit histories may find non-QM loans more accessible compared to QM loans.
4. Unique Property Types
- Non-QM loans can finance unique property types that may not meet the eligibility criteria of QM loans, such as non-warrantable condominiums, mixed-use properties, or investment properties with multiple units.
- Borrowers looking to finance non-traditional properties may find non-QM loans to be a suitable option.
5. Higher Loan Amounts
- Non-QM loans may offer higher loan amounts than traditional QM loans, allowing borrowers to finance more expensive properties or larger loan balances.
- Jumbo non-QM loans, in particular, cater to borrowers seeking high-value loans that exceed the conforming loan limits of QM loans.
6. Investment Property Financing
- Non-QM loans can be used to finance investment properties, vacation homes, or rental properties, providing opportunities for real estate investors to expand their portfolios.
7. Interest-Only Payment Options
- Some non-QM loans offer interest-only payment options, allowing borrowers to make lower monthly payments during the initial loan term. This can be beneficial for borrowers with specific financial strategies or cash flow needs.
8. Quick Approval Process
- Non-QM loans may have faster approval processes compared to traditional QM loans, as they focus more on the borrower’s overall financial profile and less on strict adherence to standard underwriting guidelines.
Types of Non Qm Loans
1. Bank Statement Loans
- Bank statement loans allow self-employed borrowers or individuals with non-traditional income sources to qualify based on bank statements rather than traditional income documentation such as tax returns.
- Lenders may analyze 12-24 months of bank statements to determine the
borrower’s income and ability to repay the loan.
2. Asset-Based Loans
- Asset-based loans consider the borrower’s assets, such as savings, investments, or retirement accounts, as a primary source of income or collateral for the loan.
- Borrowers with substantial assets but limited or irregular income may use
asset-based loans to qualify for mortgage financing.
3. Stated Income/Stated Asset (SISA) Loans
- Stated income/stated asset (SISA) loans allow borrowers to state their income and assets without providing extensive documentation or verification.
- These loans are suitable for borrowers who may have difficulty
documenting their income or assets through traditional means.
4. Foreign National Loans
- Foreign national loans are designed for non-U.S. citizens or nonpermanent residents who wish to purchase property in the United States.
- These loans may require alternative forms of income and credit verification
for borrowers without U.S.-based income or credit history.
5. Jumbo Non-QM Loans
- Jumbo non-QM loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac for conventional loans.
- These loans are suitable for borrowers seeking higher loan amounts for luxury properties or high-cost markets.
6. Investment Property Loans (DSCR)
- Non-QM loans can finance investment properties, including rental homes, vacation properties, or multi-unit residential buildings.
- These loans may have different qualification criteria and terms compared to owner-occupied loans.
7- Profit and loss statement
- A profit and loss (P&L) statement, on the other hand, is a financial document that summarizes an organization’s revenues, expenses, and net income or loss either 12 months or 24 months.