A non-qualified mortgage (non-QM) loan is a type of mortgage loan that does not meet the qualified mortgage standards established by the Consumer Financial Protection Bureau (CFPB) under the Ability to Repay (ATR) rule. Non-QM loans are designed for borrowers who may not meet the strict criteria set for qualified mortgages but are still creditworthy and capable of repaying a mortgage loan.
Here are the key features of non-qualified mortgage loans:
- Flexible Underwriting: Non-QM loans offer more flexible underwriting criteria compared to qualified mortgages. While qualified mortgages typically have strict requirements regarding borrower income, debt-to-income ratio, and credit history, non-QM loans consider alternative factors in assessing the borrower's ability to repay, such as bank statements, asset verification, or other compensating factors.
- Expanded Borrower Eligibility: Non-QM loans are available to borrowers who may not meet the traditional standards for income verification or have unique financial circumstances. This can include self-employed individuals with fluctuating income, borrowers with recent credit events or nontraditional sources of income, and those with high debt-to-income ratios.
- Alternative Documentation: Non-QM loans may allow for alternative documentation methods to verify a borrower's income and assets. This could include bank statements, investment portfolios, business financial statements, or other non-traditional documents. These alternative documentation options can be helpful for self-employed borrowers or those with non-traditional income sources.
- Interest Rates and Terms: Non-QM loans typically have interest rates that are higher than those of qualified mortgages due to the higher risk associated with borrowers who do not meet traditional criteria. The loan terms for non-QM loans can vary, including fixed-rate or adjustable-rate options, and may have different repayment periods ranging from 15 to 30 years.
- Balloon Payments and Interest-Only Options: Non-QM loans may offer borrowers the option for balloon payments or interest-only periods. A balloon payment requires the borrower to make a large payment at the end of the loan term, while interest-only payments allow the borrower to pay only the interest for a specified period, after which principal payments are required.
- Lender Variations: Non-QM loans are often originated by specialized lenders who have expertise in assessing the unique circumstances of borrowers who do not qualify for traditional mortgage loans. These lenders may have their own specific underwriting guidelines and criteria for approving non-QM loans. Mission Pacific Mortgage has experience with non-QM loans.
It's important to note that non-QM loans may carry a higher level of risk for both borrowers and lenders due to the relaxed underwriting standards. Borrowers should carefully consider their financial situation, potential repayment ability, and the terms of the loan before pursuing a non-QM loan. Let Mission Pacific Mortgage help you with your complex scenario. Like most things in life, having a tailored solution is often best.