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What is “Non-QM” Lending?


Written By: Don Thomas, Sales Manager for Synergy One Lending and Member of CCAR's Affiliate Committee

Non-QM lending, also known as non-qualified mortgage lending, is a type of mortgage lending that does not meet the qualified mortgage (QM) standards set by the Consumer Financial Protection Bureau (CFPB). This type of lending has gained popularity in recent years as it provides options for borrowers who may not meet the strict criteria of traditional mortgage loans.

Non-QM loans are designed for borrowers who may have unique financial situations or credit profiles that do not fit within the guidelines of QM loans. These loans are typically offered by specialized lenders who are willing to take on more risk in exchange for higher interest rates or other terms.

One of the main reasons why non-QM lending has become more prevalent is the tightening of lending standards after the 2008 financial crisis. Many borrowers who were previously able to qualify for traditional mortgage loans found themselves unable to do so under the new regulations. Non-QM lending emerged as a way to fill this gap in the market and provide options for these borrowers.

Non-QM loans can take various forms, including interest-only loans, bank statement programs, DSCR (debt service coverage ratio) for investment properties, and loans with higher debt-to-income ratios. These loans may require larger down payments or have shorter loan terms compared to traditional mortgage loans. Lenders offering non-QM loans typically evaluate borrowers based on their overall financial picture, taking into account factors such as income, assets, and credit history.

While non-QM lending provides opportunities for borrowers who may not qualify for traditional mortgage loans, it is important to note that these loans often come with higher interest rates and fees. Borrowers considering non-QM loans should carefully evaluate the terms and costs associated with these loans to ensure they are making an informed decision.

In conclusion, non-QM lending has emerged as an alternative option for borrowers who do not meet the qualified mortgage standards. It provides opportunities for individuals with unique financial situations or credit profiles to obtain mortgage financing. However, borrowers should talk with a trusted loan advisor and carefully consider the terms and costs associated with non-QM loans before making a decision.


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