What is a Non-QM Loan?
A Non-QM loan is a type of mortgage loan that is not backed by Fannie Mae, Freddie Mac, or Ginnie Mae, meaning that it is not subject to the same underwriting guidelines as traditional mortgage loans. Non-qualified mortgages often do not meet standard mortgage underwriting rules, such as debt-to-income ratio requirements. A loan can be considered Non-QM for many reasons - some of the most common being loan amount (jumbo loans), income documentation (e.g. bank statement loans), or loan purpose (e.g. business purpose/investor loans such as DSCR). Non-QM is often confused with the old "sub-prime" loans of the early 2000s, but though they sometimes share similar features (for instance, what documentation is used to show income), Non-QM loans are typically only available to borrowers with strong profiles, typically those with good credit and larger down payments.
Who is eligible for a Non-QM Loan?
Non-QM loans are particularly suitable for borrowers who do not meet the underwriting guidelines for conventional or government-backed financing. These types of loans are designed for those who may have difficulty securing a traditional mortgage loan due to factors such as difficult-to-document income, residency status, or property type. The eligibility for this varies based on the specific requirements of the lender.
What are the benefits of a Non-QM Loan?
Non-QM loans offer many benefits to borrowers who may not qualify for traditional mortgage loans. Non-QM loans often offer more favorable terms compared to other loans that fall outside traditional guidelines. Many borrowers are surprised to learn that Non-QM products can come with rates & terms comparable to conventional and government loans, with less restrictive underwriting guidelines.
Non-QM loans tend to be especially beneficial to self-employed borrowers, gig workers, and real estate investors.
What are the requirements for obtaining a Non-QM Loan?
Non-QM loans vary based on the individual requirements of the lender, but there are certain factors that are common across most non-qualified mortgage issuance.
Borrowers should expect to go through a more thorough underwriting process, as lenders will want to be sure that they can afford to repay the loan.
It is also essential to note that Non-QM loans usually require a larger down payment or equity position (for refinances) in the property being purchased or refinanced. While the exact percentage may vary, Non-QM loans typically do not offer low (3-5%) down payment options.
Contact Catalyst Mortgage today to learn if a Non-QM Loan is right for you! We're here to answer any questions you have quickly - whether it's a scenario, product question, or a simple rate quote, we're here to help!
