A Non-QM loan, or a non-qualified mortgage, is a type of mortgage loan that allows the borrower to qualify based on alternative methods, instead of the traditional income verification required for most loans. Common examples include bank statements or using assets as income. Because of the more flexible qualification requirements, non-QM loans are a credible and viable option for many borrowers who will not be able to qualify for QM loans with restrictive requirements. For many potential homeowners and real estate investors, Non-QM loans are the only way to make investment opportunities plausible.
Non-QM loans are favorable to borrowers due to the following benefits:
- Greater underwriting flexibility
- No personal income calculations are required
- No job history is required (in some cases)
- As little as 10% down required
- No reserves required (in some cases)
- Credit scores as low as 620 allowed (580 w/ compensating factors)
- Low debt-service-coverage ratio (DSCR) on investment properties
- Counting rental income (including Airbnb & VRBO)
Non-QM mortgages are typically recommended for:
- Self-employed individuals
- Real estate investors
- Retirees interested in purchasing a second home that will not be their primary residence
- Small to midsize business owners
- Borrowers looking for interest-only payments or more flexible DSCR requirements
- “Subprime” or “Non-Prime” borrowers who just barely miss the requirements for a QM loan and don’t want to postpone
- Those who have had a recent credit event (bankruptcy, short sale, or foreclosure)
