The Basics of Non-QM Lending and its Role in the Mortgage Industry

Non-QM lending, or non-qualified mortgage lending, refers to a type of mortgage lending that falls outside of traditional, government-backed conforming loans. These types of loans are designed for borrowers who may not meet the strict income and credit requirements of a traditional mortgage but should still be able to repay the loan. These types of loans often work well for self-employed borrowers.

Traditional Lending vs. Non-QM Lending 

The mortgage industry has traditionally relied on conforming loans, which are backed by government agencies like Fannie Mae and Freddie Mac. These loans have strict guidelines for income, credit score, and debt-to-income ratio, which can make it difficult for some individuals to qualify. Non-QM loans, on the other hand, offer more flexibility in these areas and can help borrowers who may not qualify for a conventional loan.

The Benefits of Non-QM Lending 

One of the main benefits of non-QM lending is that it allows for more borrowers to enter the housing market. This can help to increase homeownership rates and provide a boost to the economy by increasing demand for housing. Additionally, non-QM loans can also help those who had a financial hardship in the past, such as a job loss, medical emergency, or bankruptcy to get back on their feet.

Another benefit of non-QM lending is that it can provide more options for self-employed borrowers and real estate investors. For example, a bank statement loan, which is a type of non-QM mortgage, can help self-employed borrowers who can't prove their income with traditional pay stubs and W-2 forms. Instead, they can qualify with bank statements or profit and loss statements. Non-QM lenders also offer DSCR loans that can make it easier for real estate investors to qualify for a non-owner-occupied loan.

The Risks of Non-QM Loans 

It's important to note that non-QM lending is not for everyone. The lack of government backing means that these types of mortgages carry a higher level of risk for lenders, and as a result, they may have higher interest rates and stricter underwriting guidelines. It’s important for borrowers to be aware of loan terms and conditions to have a clear understanding of the risks and benefits before proceeding. FundLoans was founded as an exception-based lender whose in-house underwriters consider each borrower’s situation to see what could work to get them a loan.

In Conclusion 

Non-QM lending offers an important alternative to traditional mortgage lending that can help more borrowers become homeowners and provides more options for real estate investors and self-employed professionals. Non-QM loans can be a valuable tool for borrowers who may not qualify for a conventional loan.