To know what a NON-QM loan is you need to understand what a QM loan is. Qualified Mortgages or QM’s, are loans that follow the regulations issued by the CFPB to ensure that lenders are providing safe and sustainable home loans for consumers. QM’s must follow the ability to repay guidelines which means lenders must make a good faith effort to determine that borrowers have the ability repay the loan. QM’s loans must also not have risky features such as negative amortization, interest only payments, balloon payments and excessive terms or fees. QM loans must also satisfy one of the following:
- Borrower’s debt-to-income (DTI) ratio is 43 percent or less
- Loan is eligible for purchase, guarantee or insurance through the Federal Housing Administration, Veterans Affairs, United States Department of Agriculture or a government-sponsored enterprise (GSE), regardless of the DTI ratio
- Loan was originated by insured depositories with total assets less than $10 billion and must be held in portfolio for at least three years.
So conversely, any loan that doesn’t satisfy the above listed rules is a called a NON-QM loan. A NON-QM loan is not necessarily a riskier loan, it is one that simply doesn’t satisfy the QM standards. Prior to the COVID-19 Pandemic in 2020, NON-QM loans were making a big comeback. Examples of some of the more popular non-qm loans include limited or alternative documentation loans. In the era of the gig economy not all borrowers fit the cookie cutter borrower mold. Borrowers who may benefit from these loans are self-employed borrowers, first-time homebuyers, borrowers with substantial assets, but limited income and Jumbo loan borrowers and investors.
To learn more about our Non-QM line of products, contact us today.
