In the mortgage world, there are qualified mortgages and non-qualified mortgages. While qualified mortgages meet specific lender and borrower standards set forth by federal regulations, non-qualified, aka non-QM loans have greater flexibility and can be a great financial tool for certain borrowers.
A non-QM loan is any mortgage that does not meet the standards set by the government via the Dodd-Frank regulation. The Dodd-Frank Wall Street Reform and Consumer Protection Act is a piece of financial reform legislation that was passed under the Obama administration in 2010 as a response to the 2008 financial crisis. In 2018, certain parts of the legislation were rolled back.
Under the current Dodd-Frank regulations, qualified mortgages must meet very specific standards of lending, including the Ability-to-Repay rule. Basically this rule outlines certain guidelines lenders must use to determine whether or not a borrower has the realistic ability to afford the loan. The QM guidelines are pretty strict, in order to protect consumers as well as the financial institutions that are lending them money.
Non-QM loans also must abide by the Ability-to-Repay rule; the difference lies in the guidelines non-QM lenders use to qualify borrowers. In other words, all mortgage loans are subject to the Ability-to-Repay rule; non-QM lenders just have different ways of getting borrowers to follow the rule.
For example, with a qualified mortgage, the lender will likely need to verify employment and income, in addition to taking other factors into consideration such as credit history and the borrower’s current debt-to-income ratio. By contrast, a non-QM loan may not require any income or employment verification, but it may require a higher down payment or credit score.
Who Could Benefit From Non-QM Loans?
One of the first things non-QM lenders do when considering a loan applicant is determining if they qualify for a traditional agency loan (through Fannie Mae or Freddie Mac). Most non-QM borrowers do not qualify for traditional QM loans because their income, employment or residential status makes them ineligible. Non-QM loans give borrowers who don’t fit the mold of a traditional buyer another alternative to home financing.
You might be a good candidate for a non-QM loan if you meet one or more of the following criteria:
- Small business owner
- Contract worker or freelancer
- Foreign national
- Has substantial assets but inconsistent income or income that is difficult to document
Non-QM Loans from Luxury Mortgage
Borrowers who have been rejected for conventional or government loans often think that’s where their home buying journey must end. This simply isn’t the case! Non-QM loans can provide borrowers a route to homeownership who may otherwise be unable to qualify for financing. Take a look at a few of the non-QM loan options we offer and connect with us to learn more:
Asset Qualifier Mortgage – This loan allows borrowers to qualify based on their assets rather than income or employment.
Bank Statement Qualifier – Use statements from personal or business deposit accounts to qualify for a home loan instead of having to rely on W-2s or tax returns.
Investor Cash Flow Mortgage – Ideal for the real estate investor who wants to use the projected (or current) cash flow on a rental home to qualify. No tax returns or employment verification required and no limit to the number of properties financed.
Ready to learn more? Reach out to us today or explore more home financing options from Luxury Mortgage.
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