When it comes to mortgages, most people think conventional loans are the only way to go. But what if your income doesn’t fit inside that neat little box? That’s where non-QM (Non-Qualified Mortgage) loans come in. Despite being a game-changer for self-employed individuals, investors, and people with unique financial situations, non-QM loans are often misunderstood. In this blog, we’ll explore 10 myths about non-QM loans and set the record straight.
Myth #1: Non-QM Loans Are Just Another Version of Subprime Loans
Non-QM loans are NOT the risky, high-interest subprime loans that caused the 2008 housing crisis. These loans follow strict underwriting guidelines and require actual financial proof that you can repay. They’re built for borrowers who don’t fit traditional W-2 income verification but are still financially strong.
Myth #2: Non-QM Loans Have Ridiculously High Interest Rates
While non-QM loans can have slightly higher rates than conventional loans, they’re far from outrageous. Rates depend on your credit score, down payment, and financial history. Many borrowers find that the flexibility of a non-QM loan is worth a slightly higher rate. Plus, with a solid financial profile, you can still land a competitive rate.
Myth #3: You Need a Perfect Credit Score to Qualify
Traditional mortgages often require a high credit score, but non-QM lenders take a bigger-picture approach. They look at your income, assets, and ability to repay rather than just your credit score. You can still qualify for a non-QM loan even with past credit challenges.
Myth #4: Self-Employed Borrowers Will Never Get Approved
If you’re self-employed, a freelancer, or a small business owner, you’ve probably struggled with proving your income for a conventional mortgage. However, non-QM lenders specialize in helping self-employed borrowers by using alternative documentation like bank statements, profit-and-loss statements, or asset-based income instead of tax returns.
Myth #5: Non-QM Loans Require Huge Down Payments
While a larger down payment can help you secure better terms, non-QM loans don’t automatically require 20-30% down. Depending on your situation, many programs offer financing with as little as 10% down. Some investors even use non-QM loans for 100% financing with the right collateral!
Myth #6: You Can’t Refinance a Non-QM Loan
Yes, you can refinance a non-QM loan. Many borrowers start with a non-QM loan and refinance into a conventional mortgage once their financial profile improves. Some even refinance into another non-QM loan to pull cash out or get better terms.
Myth #7: Only People with Bad Credit Use Non-QM Loans
Many non-QM borrowers have excellent credit scores but don’t fit conventional lending criteria. This includes high-net-worth individuals, real estate investors, foreign nationals, and business owners with complex tax returns. It’s all about flexibility, not creditworthiness.
Myth #8: Non-QM Loans Take Forever to Close
Non-QM loans don’t necessarily take longer than conventional loans. Some lenders can close them in as little as 2-3 weeks! The timeline depends on how quickly you provide documentation and how complex your financial situation is.
Myth #9: You Need to Prove Employment with W-2s
Traditional lenders demand W-2s and pay stubs, but non-QM loans offer multiple ways to prove income. If you’re self-employed, you can qualify using bank statements, rental income, investments, or liquid assets. It’s all about proving you can afford the loan, not just showing a 9-to-5 job.
Myth #10: Non-QM Loans Aren’t Worth It
If you don’t fit inside the strict conventional mortgage box, non-QM loans are a lifeline. Whether you’re a real estate investor, a business owner, or someone with a unique financial setup, these loans provide real homeownership and investment growth opportunities.
Is a Non-QM Loan Right for You?
If you’ve ever been told, “You don’t qualify for a mortgage” because your income is too complex, inconsistent, or different from the norm, it’s time to explore your options. HomeSpring Mortgage specializes in non-QM loans built to work for real people in real financial situations. Reach out today to learn more.