Non-QM Loans

A non-QM loan, or a non-qualified mortgage loan, is any loan that does not comply with QM rules. It does not mean it’s a more risker loan for the borrower or the lender. Non-QM loans offer more flexibility on how income is documented. Non-QM loans also offer limited or alternative documentation. Non-QM loans must still comply with ability-to-repay (ATR) requirements. Since the loans are not insured, guaranteed, or backed by any government agency, the portfolio lender keeps the loan in their portfolio. 

Non-QM loans come in various types, including:

• Bank statement loans: Ideal for self-employed borrowers who can’t provide traditional income verification such as personal and business tax returns.
• 1099 loans: Loans for individuals who are contract workers and have 1099’s for income.
• Asset Depletion loans: These loans allow borrowers who lack traditional sources of income but have significant assets to qualify for a mortgage.
• Jumbo loans: For borrowers requiring a loan exceeding conventional conforming limits.
• DSCR (Debt Service Coverage Ratio) loans: Used by real estate investors, where the property’s rental cash flow is used to qualify instead of traditional income sources.
• Non-warrantable Condo loans: Used by borrowers when the condo they want to purchase doesn't meet conventional loan guidelines.

Self-employed borrowers who can't provide a W-2 or pay stubs to verify their income are ideal candidates for a non-QM loan. Lenders can look at their bank statements over the past year or two to get a clear picture of their income. Other non-QM candidates can include independent contractors who can use their 1099s to qualify for a mortgage, or real estate investors using a DSCR loan to help them qualify for a loan based on their property’s cash flow without verifying personal income.  

A minimum loan amount of $175,000 is required to apply. Exceptions include mortgage products for properties located within the Greater Kansas City metro and surrounding areas. Contact a NASB Loan Officer for details on the excluded areas and/or zip codes.

A conventional or qualified mortgage (QM) loan is a mortgage class that meets specific lender and borrower standards, as outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. QM loans cannot have certain more risky features like negative amortization, balloon payments, or interest-only payments. A non-QM loan is essentially any loan that doesn't meet QM requirements. 

Yes, like conventional loans, non-QM loans typically require a down payment. The amount varies depending on the lender, the borrower’s financial situation, and the loan type, but down payments generally range from 10% to 30% or more.

Yes, DSCR loans use rental income to qualify, making them a popular option for individuals seeking to purchase investment properties.

Yes, borrowers can refinance their current mortgages with a non-QM loan, especially if they don't meet the eligibility criteria for a standard refinance. This could be particularly helpful for individuals with unique financial situations or who need to reduce their monthly payments.

Lenders may use alternative methods to verify income, such as:

• Bank statements for self-employed borrowers.
• 1099’s or other financial documents for individuals with non-traditional income sources.
• Rental income or other assets that can demonstrate the borrower’s ability to repay the loan.

Non-QM loans may have higher interest rates compared to traditional QM loans due to the increased risk they pose to lenders. However, the rate will vary depending on the borrower's financial situation, the type of loan, and the lender.

Some benefits of non-QM loans include more flexibility in the types of income considered (such as self-employment income, bonuses, or rental income), the ability to exceed the standard debt-to-income ratio limits, and more options for borrowers with unique financial situations.