What’s the Difference between a QM and Non-QM Loan Program?

[Michael Mikhail]

Great question! QM stands for a qualified mortgage. Qualified mortgages tend to be traditional government-backed loans and conventional loans (basically non-government backed traditional loans).

QM Loans are usually processed through a bank on an owner occupied property whereas NON-QM Loans are a more desirable solution for real estate investors on an investment property.

NON-QM stands for a NON-qualified Mortgage. Non-QM loans are typically portfolio loans for private investors that do not conform to the strict government or conventional mortgage guidelines.

Why Should Real Estate Investors choose NON-QM Loans Over Traditional or Conventional Loans?

Mortgage lenders who utilize QM loans must first qualify a mortgage borrower’s income, liabilities, and monthly debt payments to determine whether the borrower can successfully pay back the loan in the future. To successfully qualify for a QM loan, real estate investors must fit the strict requirements set by the Consumer Financial Protection Bureau. This approval process requires borrowers to submit extensive documentation concerning their credit history, income, assets, and monthly debt payments, which usually takes well over a month to complete.

If you have an investment property that needs a quick turnaround without stringent guidelines, NON-QM loans may be better for you -- NON-QM loans do not need to abide by these strict guidelines! This means that NON-QM lenders can provide faster service and approval to more types of real estate investment opportunities.

NON-QM lenders understand that life can happen and that to a traditional lender (like a bank) certain real investors may not present like a qualified candidate for a loan. This restriction could be due to your employment status, income, credit history, and liquid asset requirements - however with a non-qualified mortgage, private lenders focus on; high credit score, investing experience, and liquid assets.

Unlike conventional investment property loans that max out at 70% LTV, a NON-QM Mortgage Program maxes at 85% LTV and with no PMI. This allows the borrower to put less money down on their purchase.

As a result, NON-QM loans’ lax restrictions make them ideal for these types of real estate investors:

Self-Employed Investors: Especially in light of the unprecedented year, with COVID-19, private lenders completely understand how difficult it is to find steady income. With a NON-QM NO-DOC Loan = This means that you do not need to show your income! Loans are based on the value of the property itself or the borrower’s credit score and liquid assets.

Foreign Nationals: Government backed loans typically require proof of a US Social Security number or a W2 (which is a US tax form). Because NON-QM loans don’t have such requirements, they are ideal for foreign nationals who are in the States on a visa and are looking to invest.