Difference between Qualified & Non-Qualified Mortgage Loans


Perhaps you need a mortgage, but you’re not sure where to start the search! If you have a non-traditional income source, you may have concerns about if you would qualify for a new mortgage.

You might have faced difficulty trying to get mortgage approval in the past and hence exploring a wide range of options. Whatever the case may be, you need to know more about Non-QM (Non-Qualified Mortgage) and QM (Qualified Mortgage) mortgage loans. Going through the review will help you to know what is offered from each loan type.

Also; don’t forget to use the great mortgage resources online. There are a lot of mortgage professionals that can provide some good advice on how best to qualify for a new mortgage.

About Qualified Mortgage Loan:

Lenders through QM loans are offered certain legal protections since these loans are underwritten with more stringent guidelines. These stringent guidelines offer safeguards to the mortgage lender and homeowners as the stringent guidelines reduce defaults.

Risky mortgage loans following such guidelines tend to feature interest-only payments and balloon payments, which are not allowed any more (under QM loans).

Along with limited upfront fees and points, the guidelines do specify the amount of borrower’s income to be directed towards mortgage loan debt. For the QM loan, a debt-to-income ratio of the borrower is not to exceed 43% (although some do get approval with slightly higher debt to income ratios).

Moreover, there cannot be any negative amortization or loan terms exceeding 30 years. (With negative amortization, your loan principal only increases with time although payments are made).

About Non-Qualified Mortgage Loan:

This is a type of loan which does not meet the QM loan set criterion is offered by many different online mortgage lenders. Considered as non-traditional loans, they are just ideal for those self-employed borrowers like entrepreneurs, independent business owners, musicians, artists, actors, retirees, hospitality workers, contractors, etc. and those with a lump sum or fluctuating incomes.

Non-QM loan borrowers might not qualify for a traditional mortgage with pay stubs, W-2s, tax returns, even though, having an income. Lending guidelines of non-QM dictates lenders to analyze ATR (Ability to Repay) of the borrower through different terms like reviewing of cash flow of business and personal bank accounts. Borrowers having unique income qualification circumstances facing potential credit issues like foreclosure, bankruptcy, isolated credit issues, and late payments may avail Non-QM loans.

How They Differ?

A huge difference is noticed between Non-QM & QM loan, which is alternative income verification methods (vs. standard QM loan verification of income methods) is followed with Non-QM loan to assist borrowers to gain mortgage loan approval.

Moreover, Non-QM loans do not get VA, FHA, Freddie Mac or Fannie Mae guarantee, backing or insurance. Moreover, lenders are offered with a safe harbor from loans meeting QM requirements from lawsuits put by loan defaulted borrowers.

Which Is The Best Loan Program To Buy A Home:

The type of loan to select entirely depends upon your specific situation and what exactly meets your requirements. When buying a new home you should evaluate all your options. Contact your loan officer to discuss all your options. Listen to the advice the loan officer provides so you can make the best decision.

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