The Difference Between Non-QM and Qualified Loans

Loan Types
Nontraditional Mortgages
Your mortgage does not have to be complicated! If you are interested in non-QM or qualified mortgages, we can help you understand the different options available to you.
Published on
July 16, 2024
Copy link
Introduction

There are two types of loans that you can choose from when applying for a mortgage: non-QM and qualified mortgages. The differences between the two can be confusing, but we're here to help you understand what each one entails and which one is best for your situation.

With traditional qualifying loans (Qualified Mortgage, or QM) there are clear and strict rules on what constitutes a qualified loan.

A qualified mortgage (QM) is a type of mortgage allowed by the federal government that has specific guidelines. These guidelines are set forth by the Consumer Financial Protection Bureau (CFPB), a federal agency established in 2011 to protect consumers from unfair, deceptive, or abusive practices related to financial products. The requirements that an issuer imposes on it borrowers are called qualification standards. They include things like how much money you make, how much debt you have, and what kind of property you want to buy. In addition to qualification standards, there are also loan features that can affect weather or not a borrower qualifies for a mortgage. There are various types of QM home loans, like FHA loans, VA loans and USDA loans.

A QM requires that:

The borrower must have a good credit history and sufficient income to make monthly mortgage payments on time with proof of employment in order for the loan officer to issue the loan. In addition, borrowers cannot be delinquent on any credit obligations or have been subjected to foreclosure within the last three years to buy a home.

Non-QM vs Qualified Mortgages

Non-QM mortgages are not subject to the same rules and limitations as QM loans. These loans typically have less stringent requirements for down payment, debt to income ratio and repayment schedules. In addition, non-QM loans do not require your self employed income be verified by an outside source. However, there is a greater risk associated with these types of mortgages because they tend to involve higher interest rates and shorter amortization periods.

QM Mortgages

Qualified mortgages (QM) are loans that meet the standards set by the Consumer Financial Protection Bureau (CFPB). These standards ensure that QM loans are not based on your credit score, but rather on your ability to repay the loan.

There are two types of QM loans: adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs). As their names imply, FRMs have a fixed interest rate for as long as you keep paying on them. ARMs start at low rates and then rise after a period of time. Both types can be either government-backed or conventional mortgages.

You have more insurance protection when you take out a QM mortgage than with other types of lending products because underwriting requirements include proof that you can afford payments even if rates increase over time.

Non-QM may be the right choice for you if:
  • You want a low interest rate.
  • You have a low credit score.
  • You have a high debt-to-income ratio.
  • You are self employed, which may make it difficult to obtain traditional financing options.
Conclusion

You now have all the information you need to decide whether or not a non-qualified loan is right for your business. If you’re still unsure, contact us today for help!

Get started today
Whether you're actively looking, or just researching, you can find out what you qualify for and get connected with a pro.
Apply Now
Explore the World of Nontraditional Mortgages
Discover nontraditional mortgages that could work for you! Fill out the form below, and one of our experienced loan officers will get in touch to discuss the best mortgage solutions tailored to your needs.
Learn More
Latest posts

Don't Stop Here

Check out some of these related articles.

ITIN Loans: Bridging the Gap for Undocumented Residents

Learn how ITIN loans can bridge the gap for undocumented residents. Understand what an ITIN is, who qualifies, benefits, and how to apply. Discover common challenges and solutions in obtaining an ITIN loan. Apply now and secure your dream home!
Read post

Strategic Equity: Leveraging Home Equity Loans to Outsmart High-Interest Debt

Learn how to strategically leverage home equity loans to outsmart high-interest debt. Understand the concept of Strategic Equity and Home Equity Loans (HELoans), calculate home equity, and discover the advantages and risks of using HELoans to manage your finances effectively.
Read post

VA Loans Explained: Benefits for Veterans and Military Families

Learn about the benefits of VA loans for veterans and military families. Understand eligibility criteria, application process, and debunk common myths. Compare VA loans with conventional and FHA loans. Hear real-life success stories and consider the advantages of VA loans. Apply today!
Read post