What Is A Non-Qualified Mortgage?

Not all mortgage is the same. Some programs allow for non-traditional income, credit and property. These are called NON-QUALIFIED mortgages or Non-QM. It’s a loan designed to help homebuyers who don’t meet the guidelines required by Fannie Mae, Freddie Mac, FHA and VA.

These rules were established as part of a 2010 Consumer Protection Act and Dodd-Frank Wall Street Reform Act to protect consumers against risky features like negative amortization, prepayment penalties and such.

Since not everyone can fit into the standard guidelines, lenders are allowed to offer Non-QM loans. So, as an example, if you are a foreign national, have credit issues, or can’t verify your income in the traditional way, you might qualify for a Non-QM mortgage.

Federal law still requires mortgage lenders to know you have the ability to repay your loan; so, they will qualify you with alternate sources of income like bank statements, or they may rely on larger down-payments and other sources of credit like reference letters. These types of mortgages also serve the needs of real estate investors; since the lending restrictions set by the Dodd Frank rules typically apply to owner-occupied properties not investment properties. So, lenders have more room to be creative when offering financing on investment properties.

The downside of Non-QM mortgages is that they typically have higher interest rates, and guidelines vary from one lender to another.