Non-QM Loans

Non-QM Loans Explained

Loans that are outside the criteria of the Federal Government and the Consumer Financial Protection Bureau (CFPB) are classified as Non-QM Loans or Non-QM Mortgages, shortened for Non-Qualifying. Knowing the terms, when these loans are used, and the pros and cons is key in the world of real estate, so let’s jump right in!

Non-QM Loans

It should not be assumed that every borrower can fit into certain specific guidelines, and Non QM Loans may be the only loan option that empathizes with this. Many are uncertain or undecided with their opinion on Non QM Loans because they lack the “stamp of approval” from the CFPB, but that should not discount the availability, application, and success rate of these loans. 

So, when would you use a Non-QM Loan?

Non-QM Loans become most attractive when you don’t meet the necessary requirements of a qualified mortgage or loan. Though taking a Non-QM Loan will have different terms than traditional loans, it will allow you to achieve your goal. Non-QM Loans are most often used when the borrower fits into one of these categories. 

  • Self-employed. When you are self-employed, it creates many obstacles in the application process of traditional loans and mortgages. Non-QM Loans do not have the parameters that traditional loans have that make it difficult for those who are self-employed to secure a loan. 
  • Owning too many multi-unit rental properties. Believe it or not, most conventional lenders put a restrictive maximum on the number of multi-unit investment properties (usually being 10). A lot of Non QM Lenders will finance the property, no matter the number of other multi-unit rentals you already have. 
  • Bad credit. Unlike traditional loans, Non QM allows you to apply in 24-48 of a major credit impact such as a bankruptcy or foreclosure. Traditional lenders often require 7 years. 
  • Countless other reasons: Borrowers looking for an ‘income only’ payment, foreign nationals, etc. 

The Pros

Compared to standard, qualified loan programs there are a list of benefits to going with Non QM other than just in the situations listed above. Not all Non QM lenders require the same criteria and have the same terms throughout the life of the loan. However, borrowers can often find a lender who does not ask for the debt-to-income ratio, has no limit on investment properties, and are open to asset depletion. No other loan option has the flexibility in documentation like Non QM does!

The Cons

Non-QM Loans and lenders are able to have the flexibility that they do because of the terms that the lender considers the “negative”. Considerably the leading negative being a higher down-payment. Non-QM down-payments are usually a minimum of 20%

Non-QM Loans are also not as common. It may be difficult to find a lender who has the option for Non-QM Loans.

As with any loan, and especially with Non-QM Loans as they have such differing requirements and terms, it is important that you read through everything and be extremely thorough so you understand all risk factors and details to your specific loan. 

How do I get a Non-QM Loan? is your one-stop-shop to help you with Non-QM financing!

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Ryan Thaler

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