Understanding Non-QM Loans with the Help of a Qualified Mortgage Broker

28 Mar 2018

Following the subprime mortgage crisis, many borrowers have become understandably wary of loans promising easier requirements. But today’s Non-QM Loans – short for Non-Quality Mortgage Loans – are nothing like the subprime loans of over a decade ago. On the contrary, they strike a crucial balance between offering easy access to funds while still nonetheless being controlled and stringent. They are thus less risky to lender and borrower alike.

QM Loans vs. Non-QM Loans

A Quality Mortgage is a broad category of home loans that share one central feature: they require the borrower to qualify for the loan – e.g. prove their ability to repay – under the specific framework set up by federal regulators in response to the mortgage crisis. This typically means that the lender will verify the borrower’s income, liabilities, debts, and other factors that may help determine their likelihood of defaulting.

By contrast, a Non-QM Loan, while still seeking to qualify a borrower, do so on their own terms rather than by the complex standards set by the government. Thus, contrary to popular belief, this type of loan is neither high-risk nor subprime, but is easier to qualify for by not conforming to onerous regulatory standards.

Subprime Loans vs. Non-QM Loans

Though more accessible than QM Loans, Non-QM Loans are far more rigorous in their qualification standards than subprime loans. For example, whereas the average credit score of a subprime loan borrower was 580, Non-QM Loan borrowers typically have a credit score 100 points higher, at 680. Similarly, while the 90% loan to value (LTV) ratio is generous by the standards of a conventional loan, it is less risky than the 100% LTV of subprime loans. The conditions are heavier and must be met prior to the requirements, while subprime loans relied on stated income and did not require appraisals.

In short, a Non-QM Loan takes a responsible approach to giving borrowers leeway to qualify while not going as far as subprime loans with respect to risk-taking.

Are Non-QM Loans Right for Me?

This option is ideal for responsible borrowers who simply don’t fit the strict profile of the government-mandated qualification standards of QM loans. If you are self-employed, and thus don’t have enough income; have assets but not as much income; or have recent credit issues despite an otherwise good credit history, this choice is worth considering. Non-QM Loans are also good for investors seeking easier access to funds for commercial purposes.

Ultimately, the best way to know if a Non-QM Loan is right for you is to consult with a qualified expert. Legacy Park Mortgage makes it our business to be up to speed on the latest loan programs available. Get in touch with one of our experienced mortgage brokers to learn more about this option and others. Contact 305-570-2139 or info@legacyparkmortgae.com to get started.