Getting a mortgage can be challenging, especially if you don’t fit the mold of a traditional borrower. Whether you’re self-employed, have a high debt-to-income ratio, or have other unique circumstances, non-qualified mortgage (non-QM) lending may be the solution you need to secure a home loan.
What is Non-QM Lending?
Non-QM lending is a type of mortgage lending that is not subject to the same strict underwriting requirements as traditional qualified mortgage (QM) lending. Unlike QM loans, which must adhere to strict rules set by the Consumer Financial Protection Bureau (CFPB), non-QM loans are designed for borrowers who don’t meet these standards.
Non-QM loans may be more flexible in terms of credit score requirements, debt-to-income ratio limits, and documentation requirements. However, they also typically come with higher interest rates and fees to compensate for the increased risk to lenders.
Who Needs Non-QM Lending?
Non-QM lending may be a good fit for borrowers who don’t meet the requirements for traditional QM loans. This includes:
- Self-employed individuals who have difficulty providing the traditional income documentation required for a QM loan.
- Borrowers with high debt-to-income ratios, such as those with significant student loan debt or those who have recently gone through a divorce.
- Borrowers with credit issues, such as a history of late payments or a low credit score.
- Borrowers looking to purchase non-warrantable condos or unique properties that don’t meet the requirements for traditional financing.
- Borrowers who need to use alternative sources of income, such as rental income or investment income, to qualify for a mortgage.
How to Get a Non-QM Loan
If you think non-QM lending may be a good fit for your unique circumstances, the first step is to find a lender who specializes in these types of loans. Not all lenders offer non-QM loans, so it’s important to do your research and find a lender who has experience working with borrowers in similar situations.
Once you find a lender, you’ll need to provide documentation to support your loan application. This may include bank statements, tax returns, and other financial documents that demonstrate your ability to repay the loan.
Keep in mind that non-QM loans typically come with higher interest rates and fees than traditional QM loans. As a result, it’s important to carefully consider the long-term costs of the loan before committing to it.
Non-QM lending may be the solution you need to secure a mortgage when you don’t fit the mold of a traditional borrower. By working with a lender who specializes in non-QM loans and providing documentation to support your loan application, you can get the financing you need to purchase your dream home. However, it’s important to carefully consider the costs of the loan and make sure it’s the right fit for your unique circumstances.