If you want to buy a home but don't qualify for a traditional loan, non-QM loans may be right for you. With these loans, the lender isn't required to verify your income, credit scores, or your debt to income ratio. Instead, they're more interested in where you plan to use the money and what type of property it will finance. For example, Non-QM loans are often used by real estate investors. Lenders will verify that you qualify for a Non-QM loan by checking your bank statements, tax return and your unconventional income. Non-QM mortgage products are no backed by government programs like Freddie Mac or Fannie Mae.
This means that non-QM loans can be used for a wide range of purposes: home purchases; refinances; construction financing; refinancing an existing mortgage; vacation homes and second homes; investment properties; businesses that require equipment or machinery purchase or lease (e.g., manufacturing plants).
Pros of Non-QM Mortgages
- You can own multiple properties with out it being used against you.
- Loans for people who have high debt.
- Loans for people who have low credit.
- Less documentation is required for non-QM mortgages than for traditional loan products.
Cons of Non-QM Mortgages
- Higher interest rate
- Higher closing costs
- Alternative repayment leaves more room for defaulting on your loan. You could end up paying an additional amount in penalties if you are unable to repay the loan according to its terms.
- Non-QM lenders and products can be harder to find
In conclusion, Non-QM mortgages are a great option for those who can’t qualify for a traditional home loan or need more flexibility in their loan terms. However, it's important to do your research and understand all of the pros and cons before you jump into one of these types of loans!