What makes a loan “non-QM”
Most mortgages are Qualified Mortgages (QM), loans that meet standards set by the Consumer Financial Protection Bureau for features and income documentation. A non-QM loan falls outside those standards, usually because it verifies your income in a different way, such as with bank statements or the rent a property earns.
Non-QM doesn’t mean anything goes. Under the federal ability-to-repay rule, every lender must still make a reasonable, good-faith determination that you can afford the loan.
Common types of non-QM loans
- Bank statement loans use your deposits to show your income, instead of tax returns that may not reflect what a business really earns.
- DSCR loans qualify an investment property on its rental income compared with its housing costs, without using your personal income.
- Asset-based loans turn savings and investment balances into qualifying income.
- Loans after a recent credit event, such as a bankruptcy or foreclosure, for borrowers who are back on their feet sooner than standard waiting periods allow.
- ITIN and foreign national loans for borrowers without a Social Security number or U.S. credit history.
Things to consider
- Compare with standard programs first. If you qualify for a conventional or government-backed loan, it will usually cost less.
- Expect higher costs. Rates, fees and down payment requirements are usually higher than for conventional loans.
- Ask about prepayment penalties. Some investor loans charge a fee if you pay off or refinance the loan early.
- Have your documents ready. Bank statement and asset-based loans rely on complete, consistent statements.
Not sure whether you need a non-QM loan? Talk to a loan officer and we’ll review your income and compare your options.