What are QM and Non-QM Loans?
A qualified mortgage (QM loan) is a mortgage loan that meets the Dodd-Frank Act consumer protection requirements. Lenders are required to make good-faith efforts to establish the borrower’s ability to repay the loan before finalizing the mortgage. Your lender will likely ask about income, credit history, assets, employment and expenses.
Qualified Mortgages are required to meet certain underwriting standards, limitations on pricing, and thresholds on the points and fees the lender may charge. QM loans cannot not include balloon payments, interest only, or negative amortization, and cannot include pre-payment penalties
A non-qualified mortgage (non-QM loan) may include one or more features that falls outside the specific requirements of a qualified mortgage. Like QM loans, lenders must make a good faith determination of the borrower’s ability to repay the loan, but may expand its underwriting guidelines to include non-traditional documentation. Non-QM loans may also include certain loan features that are typically not available on QM loans, such as interest only, 40 year terms, and pre-payment penalties. QM loans are intended to assist homebuyers with unique circumstances qualify for a mortgage, which may include self-employed borrower’s with income that is difficult to document, borrower’s whose primary source of income is from investments, borrower’s with multiple financed properties (i.e. investment properties). Non-QM loans are typically priced higher than QM loans.
Borrowers who are offered nonQm loans may find that interest rates are higher than qualified mortgages.
QM vs Non-QM
- Down payments may typically be lower
- Interest rates may typically be lower
- Government backed loans
- Risky loan features are prohibited
- Alternative documentation accepted
- Credit requirements are eased
- Available to foreign nationals
- Investors are usually not limited by the number of financed properties