Non-QM Loans can be a brilliant solution for borrowers who are not a good fit for a typical mortgage, but there are some common myths about non-QM loans that sometimes stand in the way of making a confident and informed decision. If you’re considering applying for a non-QM loan, start by debunking these common myths.
What is a non-QM loan?
Non-qualified mortgage (non-QM) loans are a lesser-known but valuable part of the mortgage industry, providing options for borrowers who don’t fit the traditional mold of a qualified mortgage. The “QM” stands for “Qualified Mortgage.” Qualified Mortgage (QM) loans provide a standardized and regulated path for borrowers who fit the traditional mold, offering protections and potentially lower interest rates. In contrast, Non-Qualified Mortgage (non-QM) loans offer an alternative for borrowers with unique financial situations, such as self-employed individuals, real estate investors, and those with recent credit events, by providing greater flexibility in underwriting and loan terms.
We offer multiple non-QM loan options, including self-employed bank statement loans, stated income loans, and cash flow investment loans.
Myth: A Non-QM Loan is for Borrowers with Bad Credit
One of the most pervasive myths about non-QM loans is that they are solely for borrowers with poor credit. While it’s true that non-QM loans can be an option for you if you have credit challenges, this isn’t their primary purpose. Non-QM loans cater to a wide range of borrowers, including:
- Self-Employed Individuals: Many self-employed borrowers have irregular income streams or use deductions that lower their reported income, making it difficult to qualify for traditional loans.
- Real Estate Investors: Non-QM loans can be an ideal fit for investors who have multiple properties or unique financial situations that don’t fit the standard loan criteria.
- Foreign Nationals: Non-QM loans can also serve foreign nationals who may not have a U.S. credit history but are otherwise financially stable and totally capable of repaying the loan.
The key factor in non-QM lending is not poor credit but the flexibility to accommodate various financial profiles that don’t conform to traditional lending guidelines.
Myth: A Non-QM Loan Has Extremely High Interest Rates
Another common myth is that non-QM loans come with prohibitively high-interest rates. While it is true that non-QM loans may have higher interest rates than conventional loans, the difference is not always drastic. The rates depend on several factors, including the your credit score, the loan-to-value ratio, and your overall financial profile.
As your lender, we take on additional risk with non-QM loans due to their flexible qualification criteria, which can result in slightly higher rates. However, these rates are often competitive and can be offset by the loan’s benefits. Before making any assumptions about the interest rate you’ll have, just reach out to us to get more information based on your specific scenario.
Myth: Non-QM Loans are Risky
A Non-QM loan is sometimes perceived as inherently riskier for borrowers. This misconception likely stems from confusion with the subprime lending practices that contributed to the 2008 financial crisis. However, non-QM loans are not synonymous with high risk. We look at a detailed assessment of your financial situation, and the loans are designed to ensure that you can repay the loan.
Many non-QM loans also come with features that can uniquely benefit you, like interest-only payments, flexible terms, and the ability to qualify based on alternative income verification methods. These features can make non-QM loans a practical solution for borrowers who might otherwise struggle to obtain financing, without begin high risk.
Myth: A Non-QM Loan is for Primary Residences Only
For some reasons, many people mistakenly believe that non-QM loans are only available for primary residences. In fact, non-QM loans can be used for various property types, including:
- Primary Residences: For those with non-traditional income or financial situations.
- Second Homes: For individuals looking to finance a vacation property.
- Investment Properties: For real estate investors who want to purchase rental properties or other investments.
This versatility makes a non-QM loan an attractive option for a broad range of borrowers with diverse property needs. We can help you determine what type of loan fits your needs best, based on your income source, your goals, and your unique financial profile.
Ready to learn more about non-QM loans? Contact us any time. With decades of experience in the field, we have become experts in helping our clients find the financing they need to reach their goals in real estate.
