What is a Non-QM Loan and What are They Good for?

Non-QM Loan South Carolina

In the lending industry, there are a vast number of different ways to borrow and lend money. One type of loan structure is a Non-QM loan. A Non-QM loan stands for a “non-qualified loan”. It is a type of mortgage loan that doesn’t require the standard qualifiers that most traditional loans do. With a non-QM loan, people, or businesses, can use alternative methods to secure a loan other than their credit history, previous borrowing record, and financial credentials. One of the most common types of non-QM loans uses someone’s collateral.

What is the Difference Between a Non-QM Versus a Qualified Mortgage?

The biggest difference between a non-QM and a traditional mortgage loan is that a non-QM is not required to meet the Consumer Financial Protection Bureau’s or the Federal Government’s guidelines for obtaining a mortgage loan. That means that a non-QM loan can help a broader range of real estate opportunities for more borrowers with various objectives and credit histories.

What are the Qualified Mortgage Requirements?

Due to the market crash of 2007 to 2009, and the slew of foreclosures that preceded it, the government set stricter guidelines about who can qualify for a loan. In 2014, the Consumer Financial Protection Bureau developed a standard minimum of requirements to take out a traditional mortgage. It was initially drafted to protect borrowers from engaging in loans that will put them at potential risk of non-repayment and foreclosure.

What are the Benefits of a Non-QM Loan?

One of the biggest advantages of taking out a non-QM loan is that you don’t have to go through the arduous process of sifting through your financial information and background. Other benefits include:

  • You can post as little as 5% down
  • The underwriter has a lot more flexibility
  • There is typically no job history required
  • Your personal income is typically not considered
  • There are usually no reserves
  • You can have a credit score of as low as 620 or 580 with compensating factors
  • Rental income is accepted in the calculation
  • A low debt-service-coverage ratio for investment properties

Who Could Benefit From a Non-QM Loan?

Sometimes borrowing money through traditional channels can be difficult, especially if you have little to no credit history. But, unfortunately, houses don’t sit on the market forever. A non-QM loan is an excellent idea for someone who is looking to take out a loan quickly without all the background information and time required. Once secured, the borrower can, over time as they build credit, refinance their loan. It is also a great option for people who invest in real estate, like those who are looking to fix up a home and resell it. Once they sell the home as an investment, they simply pay off their loan and the rest is profit.

What are the Disadvantages of a Non-QM Loan?

One of the most common disadvantages of a non-Qm loan is that they carry a higher interest rate because they involve greater risk for the lending institution. But as long as you intend to pay them off on time, they are an excellent alternative!
If you are looking to help your clients purchase a home, but their credit history or financial situation on paper won’t qualify them, Spring Mortgage is here to help. We offer the most creative solutions in the industry to qualify those who want to own a home. Contact us today and let’s see how we can make your potential homebuyer’s dream a reality with a Non-QM Loan in South Carolina!