Non-QM Loans
Traditional mortgages backed by organizations like Fannie Mae and Freddie Mac, or government programs like FHA, VA, and USDA, have specific requirements related to income, credit, and job stability. But what do homebuyers do if they don’t meet these criteria?
Non-Qualified Mortgage loans (Non-QM loans) can be the solution.
What is a Non-QM loan?
Non-QM loans are mortgages that offer their own set of criteria, often including more flexible income and credit requirements. These fall outside traditional criteria set by the Consumer Financial Protection Bureau (CFPB) and therefore cannot be backed by Fannie Mae, Freddie Mac, or government institutions. In exchange for expanded qualification opportunities, borrowers may need to pay a higher interest rate or make a larger down payment<https://crosscountrymortgage.com/resources/down-payment>.
Who are Non-QM loans for?
Non-Qualified Mortgage loans are designed for any home purchase or refinance that doesn’t fit traditional guidelines. By going beyond the norm, we can help more people achieve their homeownership goals.
That includes self-employed borrowers, real estate investors, homebuyers without a Social Security number, people who recently went through a credit event, and so many more!
Types of Non-QM loans
Non-QM pros and cons
Non-QM loan pros
Non-QM loans allow non-traditional borrowers to finance their homes. This can include:
- Retirees
- Real estate investors
- Self-employed or “gig” workers
- Borrowers with a high debt-to-income ratio
- Borrowers with blemishes on their credit history
Alternative documentation makes these opportunities possible.
The CFPB maintains standards for determining a borrower’s ability to repay a home loan. Typically, the following documents are used to determine if you meet requirements:
- W-2s
- Bank statements
- Pay stubs
- Tax returns
But Non-QM loans allow you to qualify outside of these typical terms using alternative documentation; like 1099s, P&L, WVOE, bank statements, and rental income.
Non-QM loan cons
Since Non-QM loans don’t follow traditional guidelines, they cannot be purchased by Fannie Mae or Freddie Mac or backed by government agencies like the FHA or USDA.
This means lenders take on all the risk when issuing a Non-QM loan. To cover this risk, Non-QM loans often come with higher interest rates compared to conventional loans, which can increase your monthly payment.
Non-QM loans can also come with loan periods that exceed 30 years. While this may benefit some borrowers, it keeps you locked into your mortgage for a longer period and increases the total amount you pay for your home.
Non-QM loan requirements
The exact criteria for a Non-QM loan will vary by the program. But in most cases, Non-QM loans will offer greater financial flexibility than traditional loans.
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Credit history
Even if your credit score is fair or poor, you can still meet the requirements for a Non-QM loan. Most Non-QM loans allow borrowers with a credit score of 620 to qualify, while some open the door to homeownership for individuals with credit scores as low as 500.
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Debt-to-income ratio
For a conventional loan, borrowers are expected to have a debt-to-income ratio of 43% or lower. But Non-QM loans are available for individuals with a debt-to-income ratio of 50% or even higher – providing loan options to those whose debts might otherwise prevent them from achieving their homeownership dreams.
How to get a Non-QM loan
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1
Talk to a CCM loan officer
Our loan officers have experience and expertise in Non-QM loans and will be happy to help determine which one is right for you.
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2
Complete a loan application
At CCM, we offer a convenient online application, or you can contact our loan officers directly to help start the process.
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3
Get approved to lock in your interest rate
We’ll help you determine if you meet the requirements for a Non-QM loan and, if you do, start a streamlined approval process that allows you to lock in an interest rate for the duration of your loan.
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4
Receive your loan and close your home
We’ll help you set up convenient monthly payments according to your repayment schedule so you can move in with peace of mind.
Non-QM loan FAQs
Here are answers to a few questions you may have, but as with any mortgage, your loan officer is your best resource.
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People who may not meet traditional financing requirements due to financial circumstances, employment, homebuying situation, type of home being purchased, or the high cost of the home.
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Non-conforming and Non-QM are two common terms for the same programs.
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While Non-QM loans aren’t best for every borrower, this doesn’t mean they’re bad. You’ll trade a lower down payment and interest rate for more flexible qualification criteria – which may be the difference between being a house hunter or a homeowner.
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Since Non-QM loans don’t follow traditional guidelines, they’re considered riskier and may require a higher down payment, higher interest rate and other terms to lower the lender’s risk.
But Non-QM loans are a safe and beneficial financing option for many borrowers. Contact a CCM loan officer to discuss what’s right for you.
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Yes. Jumbo loans exceed conforming loan limits set by the Federal Housing Finance Agency.
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No. Conventional loans follow CFPB criteria, while Non-QM loans do not.
More on Non-QM loans
How to Qualify for a Self-Employed Mortgage Loan
What Are the Pros and Cons of Refinancing Your Home?
Watch CrossCountry Mortgage’s Year in Review 2023
National Association of REALTORS® Profile of Home Buyers and Sellers 2023