What is a non-QM loan?

Following the 2008 meltdown, the Dodd-Frank legislation placed minimum standards on mortgages and created a “Qualified Mortgage” definition.

These loans are almost all the mortgages which are underwritten and they contain specific safeguards which focus on conservative lending standards and the borrowers ability to pay. Banks and other mortgage lenders follow QM rules as they give lenders liability protection and allow them to make loans with less fear of buybacks and lawsuits.

Non-QM Loans Become More Prominent

Non-QM loans are not riskier and no one is suggested a return to subprime lending. Non-QM loans are merely loans which do not comply with each of the complex Qualified Mortgage rules.

Some examples of non-QM loans include:

(1) loans with 40-year amortizations;

(2) interest only loans;

(3) loans that use bank statement deposits for income verification;

(4) jumbo loans with debt ratios over 43%

Why Non-QM Loans Are Not High Risk

Non-QM loans have been around for years. The guidelines are not getting looser. They are different from pre-2008 loans as lenders demand larger down payments or other compensating factors such as perfect credit.

The pre-2008 days of ‘no down payment’ requirements are gone.

Why Non-QM Loans Are Good For Real Estate

Non-QM loans provide alternative routes for otherwise qualified buyers to financial (residential) real estate.

One example is a self-employed business owner with great credit and plenty of assets, but limited income. Individuals in this situation may take advantage of a bank’s statement program.

Another example is the individual with limited income on paper, but enough assets to pay cash for the property, but prefers to finance a purchase to avoid liquidating assets.