Introduction

If you don't fit into the box of the typical mortgage, a non-QM home loan may be right for you.

QM and Non-QM Home Loans

QM and Non-QM loans are both mortgages, but they're very different. We'll talk about the differences between these two types of mortgage in a minute, but first, let's talk about what qualifies as "good" or "bad" credit.

If you have an excellent credit score (a 760+ FICO), you most likely qualify for a QM loan because lenders will see that your debt-to-income ratio is healthy and stable. If your score falls somewhere in between 720 and 759 on the FICO scale (or even lower), then it's likely that you'll still be able to get some kind of mortgage with less stringent qualification requirements—but not necessarily one that's guaranteed by the government like QM loans are.

On the other hand, if your FICO score is below 640 (and especially below 620), then chances are good that no bank will give you any type of mortgage at all except for one backed by FHA or VA. So in many ways there are multiple types of non-conforming mortgages; however, these three broad categories should cover most situations.

How are QM loans different from Non-QM loans?

Qualified Mortgages are subject to stricter requirements than non-qualified home loans. Moreover, underwriting standards for qualified mortgages are more stringent than those for non-qualified home loans. Finally, all consumer protections associated with Qualified Mortgages apply in full force and effect to all lenders who originate these types of mortgages.

So what are Non-QM home loans?

Unlike conventional mortgages, Non-QM home loans are for borrowers who don't qualify for a conventional mortgage due to their credit score, debt-to-income ratio, or because they are self employed. They can also be used by borrowers who have a lower down payment, are a foreign national, need a jumbo loan, or because they are using it for an investment property

Conforming and Non-Conforming Home Loans

Conforming loans are the standard mortgages that Fannie Mae and Freddie Mac purchase. These loans are eligible for purchase by Fannie Mae and Freddie Mac because they meet the guidelines that Fannie Mae and Freddie Mac have set forth.
Non-conforming loans are those that do not fall into the box of what is considered a typical mortgage. They may be too large, too small or have some other issue that makes them non-conforming to certain lenders.

Non-Conforming home loans fall under this category of Non-QM home loans.

What are Non-Conforming Home loans

You might have heard the term "Non-Conforming" when it comes to mortgage loans. Many people use this term interchangeably with "non-QM" or "non-qualified," but this is not correct.

The truth is that all non-conforming mortgage loans are non-qualified, but not all non-qualified mortgages are non-conforming. The difference lies in the purpose of each loan and how it's used.

Conclusion

If you don't fit into the box of the typical mortgage, a non-QM home loan may be right for you. So if you love your home, but it doesn’t fit the mold, don’t worry. There are plenty of ways to get a loan that works for you!

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