A Non-Qualified Mortgage (Non-QM) loan is a type of mortgage that does not meet the standards set by the Consumer Financial Protection Bureau (CFPB) for a qualified mortgage (QM). These standards were put in place to ensure that borrowers are not given loans they cannot afford and to protect them from predatory lending practices.
The CFPB established several guidelines for QM loans, including a 43% maximum debt-to-income (DTI) ratio, which is the percentage of a borrower’s monthly gross income that goes towards debt payments. Additionally, QM loans cannot have risky features such as negative amortization, interest-only payments, or terms longer than 30 years.
Non-QM loans, on the other hand, do not have to adhere to these guidelines. This means that they can have higher DTI ratios, adjustable rates, or other features that may be considered risky. However, this also means that they may be more difficult to qualify for.
One of the most common types of Non-QM loans is the bank statement loan, which is designed for self-employed borrowers or those who have a fluctuating income. Instead of requiring traditional pay stubs or W-2 forms, bank statement loans allow borrowers to provide their personal or business bank statements as proof of income. This can be beneficial for borrowers who have a high income but a high DTI ratio, as they may not qualify for a QM loan but may still be able to qualify for a bank statement loan.
Another common type of Non-QM loan is the asset-based loan, which is based on a borrower’s assets rather than their income. This can include things like stocks, bonds, or other investments. Asset-based loans can be beneficial for borrowers who have a high net worth but a low income, as they may not qualify for a QM loan but may still be able to qualify for an asset-based loan.
It’s also worth noting that some lenders offer Non-QM loans that are designed to help borrowers with past credit issues, such as a recent bankruptcy or foreclosure. These loans, known as “non-prime” loans, may have higher interest rates and fees, but they can also provide borrowers with the opportunity to rebuild their credit and eventually qualify for a QM loan in the future.
It’s important to note that Non-QM loans may come with a higher interest rate and fees than QM loans, as they are considered higher risk for the lender. Additionally, borrowers should be aware that these loans may not have the same consumer protections that QM loans have, such as the ability to refinance or the ability to sue the lender if the loan does not meet the standards of a qualified mortgage.
In conclusion, a Non-Qualified Mortgage (Non-QM) loan is a type of mortgage that does not meet the standards set by the Consumer Financial Protection Bureau (CFPB) for a qualified mortgage (QM). Non-QM loans are designed for borrowers who may not qualify for a QM loan due to high DTI ratio, recent credit issues, or self-employed status. These loans can include bank statement loans, asset-based loans, and non-prime loans. Non-QM loans may come with a higher interest rate and fees than QM loans, and borrowers should be aware that these loans may not have the same consumer protections that QM loans have.
