What is a Non-QM loan?
A non-QM or non-qualified mortgage is a home loan designed to help home buyers who can't meet the strict criteria of a qualifying mortgage. For example, if you are self-employed or don't have all the necessary documentation to qualify for a traditional mortgage, you might need to look at non-qualified mortgages.
Non-QM Qualification Requirements
The best way to understand a non-qualifying mortgage is to look at the criteria for traditional, qualifying mortgages. To qualify for a traditional mortgage, you must meet these requirements:
- ◉ Income
You must have verifiable income, including pay stubs, W-2s, and tax returns.
- ◉ Debt
Your debt-to-income ratio (DTI) must be 43% or less. This is the amount of your monthly income that goes toward your existing debts.
- ◉ Limits on fees
Points and fees on your loan cannot exceed 3% of the loan amount.
- ◉ No risky loan features
Risky features include interest-only loans (where you only pay interest without reducing the principal), negative amortization (where your principal can increase, even while you are making payments), or balloon payments (where a larger payment can be tacked on to the end of the loan).
- ◉ Loan Term
The loan term must be 30 years or less.
Is a Non-QM Loan for you?
A non-QM is a good idea when you have the income to make regular, on-time mortgage payments, but cannot get a qualifying mortgage. The type of borrower who might benefit from a non-QM loan includes:
- ◉ Retiree
- ◉ Self-employed
- ◉ Real estate investor
- ◉ Business owner
- ◉ Foreign national
- ◉ Buyer who lives off investments, or has high assets and low income
- ◉ Buyer with a high debt-to-income ratio
- ◉ Buyer with less-than-perfect credit
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