What Are Non-QM Loans Versus QM Mortgage?

July 26, 2019

Many people have the dream of one day owning a home; however, only a few people can purchase a home in cash. Therefore, nearly everybody needs to take out a loan in the form of a mortgage. It can be a challenge to convince a bank, credit union, or another lender that someone is qualified for a loan. The lender is likely going to do a detailed check, taking a look at the credit score, income history, and current assets on hand.

This scrutiny could end up disqualifying many people from receiving the home loan that they so desperately need to make their dreams come true. Because of this, there are alternatives available. One of these comes in the form of a Non-Qualified Mortgage Loan, often shortened to Non-QM Loan. What does this mean?


What is a Non-QM Loan?

The Consumer Financial Protection Bureau has a number of rules in place that govern how many home loans are structured. These rules are put in place to protect both the borrower and the lender; however, these rules can also make it difficult for some people to qualify for a home loan. A Non-QM Loan is any loan that does not abide by the rules set forth by the Consumer Financial Protection Bureau.

Non-QM loans are still offered to people who might not be able to prove that they are able to make regularly scheduled mortgage payments. These loans are stereotyped as high-risk or subprime; however, this isn’t always the case. In some situations, people might not be able to check every box required for a qualified mortgage loan but might still be capable of taking on a mortgage. The individuals who might receive a Non-QM Loan often:

  • Have a low income on their tax returns

  • Have been self-employed for less than 24 months

  • Possess a high debt ratio

  • Have a blemish on their credit score

If these factors describe a potential borrower, they might not be able to qualify for a QM loan. On the other hand, they might still be able to qualify for a Non-QM loan. What makes a QM loan different from a Non-QM Loan?


A Qualified Mortgage Loan

In contrast, a qualified mortgage loan meets all of the rules that were set forth by the Consumer Financial Protection Bureau in July of 2010. These rules were put in place to protect lenders and borrowers from the subprime loans that collapsed the economy back in 2009. Some of the key features that describe a qualified mortgage loan include:

  • A lack of predatory upfront points and fees (the costs associated with the mortgage application process and closing)

  • No toxic loan features such as negative amortization loans (the amount borrowed increases over time), loans exceeding 30 years, or interest-only loans (which would not shrink the principal)

  • No balloon loans, where a larger than normal payment is due at the end of the life of the loan

A qualified mortgage loan is much more favorable to the borrower and the lender; however, some people might not qualify for a QM loan.


Trust the Trained Professionals

Not everyone is interested in a qualified mortgage loan, and there are alternatives available. Those who are seeking a non-traditional home loan should reach out to Homex Mortgage today to learn more. Purchase the home of your dreams today.