What is a Non-Qualified Loan?

Depending on the type of mortgage you’re interested in and the specific loan terms you’re looking for, a non-qualified mortgage may be a good fit for you.

A non-qualified mortgage — or non-QM — is a home loan that is not required to meet agency-standard documentation requirements as outlined by the Consumer Financial Protection Bureau (CFPB).

Non-QM loans may encapsulate a wide variety of mortgages, including:

Non-QM loans may also exceed the CFPB’s current price-based thresholds:

Avoiding those agency-standard documentation requirements means lenders do not need to make a good faith determination on the borrower’s ability to repay a non-QM loan. In this case, “good faith determination” usually refers to checking W2 forms, pay stubs, bank statements and other documents that verify you make enough money to eventually pay back your home loan.

If you’re thinking that sounds pretty risky, then you would be absolutely right. Homebuyers who use non-qualified mortgages are not protected by the CFPB. But, because non-QM loans are not burdened by those CFPB rules, lenders are able to offer more flexible income requirements while setting higher interest rates to offset the added risk.

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