What Is a Non-Qualified Mortgage (Non-QM)?

A non-qualified mortgage, or non-QM, is a type of mortgage often taken out by borrowers who have the funds to buy a home but are unable to meet the typical mortgage eligibility requirements. For instance, self-employed workers with irregular incomes might not be eligible for qualified mortgages, or QMs, which have strict lending requirements.

How Non-QMs Work

澳洲幸运5开奖号码历史查询:Qualified mortgages are those that meet the Dodd-Fra🐠nk 💫Wall Street Reform and Consumer Protection Act’s lending requirements. 澳洲幸运5开奖号码历史查询:Non-qualified mortgages also have their own sets of criteria you have to meet to get a mortgage, but these aren’t the same as those outlined in the Dodd-Frank Act. Not all lenders offer non-QMs, but those that do give borrowers a chance to purchase a home they🌊 might not otherwise be able to qualify for.

As with other types of home loans, the borrower eligibility requirements for a non-QM are set by the mortgage lender. In most cases, you might need to make a larger 澳洲幸运5开奖号码历史查询:down payment or can expect to pay a higher 澳洲幸运5开奖号码历史查询:interest rate on a non-QM.

You might also be required to meet a certain income threshold or prove your income in ways other than providing a W-2 or 澳洲幸运5开奖号码历史查询:pay stubs, as you typ𝓰ically would for a QM. This is important for borrowers who have non-traditional sources of i🐼ncome, such as self-employed business owners and contractors.

History and Regulatory Background of Non-QMs

In the aftermath of the 澳洲幸运5开奖号码历史查询:2007–2008 financial crisis, the Dodd-Frank Act of 2010 changed the financial regulation and oversight of, among other things, the mortgage lending industry. The goal was to ensure that 🥀anyone borrowing money to 𓃲purchase a home could reasonably repay their debt.

As part of this, the act established anti-predatory lending provisions that lenders must comply with in order for their mortgages to be considered QMs. These include reviewing a prospective borrower’s employment status, monthly expenses, proof of income, and 澳洲幸运5开奖号码历史查询:credit history. Thus, home loans that don’t meet these requ𓆏irements are considered non-QMs.

Pros and Cons of Non-QMs

Pros Explained

• Flexible qualifying criteria: Without the strict requirements that QMs are subject to, lenders are able to assess potential borrowers based on a variety of possible factors. For instance, QMs typically require a minimum 澳洲幸运5开奖号码历史查询:credit score or substantial credit history, so a non-QM is often a good option for non-prime borrowers.
• Good for non-traditional workers: Self-employed business owners, contractors, etc. who may be ineligible for a QM could qualify for a home loan by applying for a non-QM instead.

Cons Explained

• Potentially higher interest rates: Because lenders view non-QMs as being riskier than their QM counterparts, non-QMs typically have higher interest rates.
• Larger down payment: You could pay as little as 0% down with some QMs. But for non-QMs, you might have to pay 25% of your home’s sale price, depending on your credit score.
• Harder to find: Not all lenders offer non-QMs, so you might have to work a bit harder to track down a non-QM lender that both suits your needs and you’ll be able to qualify for.

The Bottom Line

Getting a mortgage can take a lot of work, and for folks who might not be eligible for QMs, non-QMs are a good alternative, though they aren’t without their downsides. Determine what you’re eligible for and compare several different lenders before you submit an application for a non-QM. It might also🏅 be smart to talk to a mortgage brokerꦡ or realtor to figure out what home loan options you may have.