Non-QM Mortgage Loans
A Non-Qualified Mortgage (Non-QM) is any home loan that doesn’t comply with the Consumer Financial Protection Bureau’s existing rules on Qualified Mortgages (QM). Usually this type of correspondent mortgage loan accommodates people who are not able to prove they are capable of making the mortgage payments. Just because it is a Non-QM correspondent mortgage loan does not necessarily mean high risk or subprime mortgage risk, and in many cases these correspondent mortgage loans require a high FICO score but simply do not check all the boxes associated with a correspondent QM loan. The main difference between the two types of correspondent mortgage loans is that correspondent Non-QM loans for mortgages are protected by the lender against any type of lawsuit should you become unable to afford the mortgage loan.
Typically, individuals experiencing one or more of the following may qualify for this alternative:
- High debt ratio
- Blemish on FICO credit to unforeseen circumstances
- Self-employed for less than two years
- Low income on tax returns
There is more flexibility in how income can be documented some examples are:
- Two Years W-2's
- Two Years Tax Returns
- 12 Months Personal Bank Statements
- 12 Months Business Bank Statements
- 24 Months Personal Bank Statements
- 24 Months Business Bank Statements
- Income From Rental Property
- DSCR (Debt-Service Coverate Ratio)
- No Ratio (No additional documentation is required)
Who benefits from these loans
These borrowers generally have sporadic pay and multiple income streams, making it hard for them to get a qualified mortgage. Many self-employed, non-QM borrowers get bank statement loans (rather than relying on W2s), which are based on their cash flow and liquid assets.
These are the folks who fix-and-flip or generate an income from the homes the buy, and need funding quickly. Investors are exempt from the ability-to-repay rule, usually because they flip the homes they buy quickly, or they rely on rental income to repay the mortgage.
Non-resident borrowers who want to purchase property in the U.S. might not qualify for a traditional loan because of a low or non-existent U.S. credit score. Non-QM lenders use international credit reports and letters from creditors to qualify this group. Mitigating factors, such as a high income, robust liquid assets and a large down payment, also help foreign borrowers qualify for non-QM loans.