What Is a Non-QM Loan?

By Accel Mortgage
October 28, 2022

The home mortgage market is a crowded one. There are many different options and mortgage lenders at your disposal. If you have any concerns that you might not qualify for a conventional mortgage, a non-qualified or non-QM mortgage loan may be the right choice.

What Is a Non-QM Loan?

A non-qualified mortgage is for homeowners who may fall a little short of the criteria of a conventional mortgage loan. These criteria include:

  • You must have a debt-to-income ratio of 43% or less.
  • The loan term can't exceed 30 years.
  • You have to have a verifiable income.
  • The loan can't have risky features like balloon payments or negative amortization.

If you can't meet those requirements, give non-QM loans a look.

Should I Get a Non-QM Loan?

Perhaps. Mortgages have strict criteria to protect both the lender and you. The lender needs to get their money back, and you need to know you can afford to live in and keep your house. So while a conventional mortgage is often preferable due to its lower interest and down payment options, a non-QM loan can be the right answer in certain cases.

The advantages of a non-QM loan include less stringent requirements regarding documented income and credit scores. In addition, the application process is similar to a regular mortgage. Therefore, it's relatively easy to apply.

The primary disadvantage of a non-QM loan is that it is typically a more expensive loan. Because you are a bigger risk, the interest rate and fees will likely be higher. Also, it is more challenging to find lenders who offer this financing alternative.

Potential homeowners who are good candidates for these loans include:

  • Real estate investors
  • Business owners
  • Self-employed persons
  • Retirees
  • Foreign nationals

Anyone who can pay their monthly bills but may have issues with meeting the other criteria for a conventional mortgage should consider a non-QM loan.

How Do I Get a Non-QM Mortgage?

There are mortgage lenders who specialize in these types of mortgage loans. You will need a credit score in the high 500s, but they may work with you if you don’t have that. However, you will probably have to pay a higher interest rate and more fees.

After locating a lender that issues these loans, you will begin the application process. Ask your lender about the paperwork you will need. Often, a non-QM loan will allow you to prove your income through bank statements instead of tax returns. Working closely with your lender will be necessary to improve your chances of receiving the loan.

If you have more questions or are interested in a non-qualifying mortgage, talk to the lending experts at Accel Mortgage. We can assist you with your mortgage application regardless of the type of loan you need. Take the first steps toward homeownership. Contact us today!

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