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What Is A Non QM Loan (Non-Qualifying Loan)


Since January 2014, there have been two separate categories of loan, namely qualified loans and non-qualified loans, which means that lenders will be treating each group differently. If a lender offers a non-qualified loan to a buyer, there will be more documentation requirement and underwriting considerations for the mortgage loans.

There are no rules in the Ability to Repay that state the lenders can’t or should not be offering non-qualified loans. These rules simply state that the lender needs to have an evidence that shows that the ability to repay the loan has been carefully analyzed by the underwriter and the guidelines are being met.

CFPB: Qualified Mortgage (QM) Criteria

It is a good idea to learn about the criteria of the Qualified Mortgage Loan, just so you can understand it well. Here are the mandatory product feature requirements for the qualified mortgages:

  • The fees and the point has to be less than or equal to 3% of the total loan amount. If the loan amount is more than $100k, then threshold of higher percentages are permitted.
  • There are no risky features involved like interest only, balloon loans, and negative amortization.
  • The maximum term loan can’t exceed more than 30 years.

Categories of Qualified Mortgage

There are three main categories, which we will be discussing.

General Definition Category of QMs

The loans that have a debt top income ratio of less than 43% are considered as a qualified mortgage.

“GSE-eligible” category of QMs

This category includes any loans that meet the product requirements and are eligible for insurance, purchase, or guarantee by VA, GSE, FHA, or USDA and the debt to income ratio does not matter. This category is suitable for GSE loans as long as they are in FHFA conservatorship and for federal agency loans until they can issue their own.

Small Creditor Category of QMs

If you have an amount that is less than two billion dollars and are able to originate 500 or fewer first mortgages every year, they are considered as QMs if the borrower’s DTI ratio has been verified.
It is important you now that if the CFPB points out that a mortgage is a non-qualified one, it doesn’t mean that’s a bad thing. Remember that you can originate any kind mortgage if you are determined that the consumer will be able to pay it back on the common underwriting factors.

Learning about the Non-Qualified Mortgages

A lot of people wonder whether the non-qualified mortgages are same as the subprime. Back in 2000, subprime mortgages were very popular and a lot of people supported these until the subprime crash. Non-qualified mortgages are not the same as subprime but they are similar because they are not conforming loans that can be sold to the GSE. Here are some of the most common questions answered about the non-qualified mortgage programs:

What is a SIVA loan?

Stated Income Verified Asset loan allows a person to state their gross monthly income and then the lender verifies their assets, when the loan taker submits the brokerage statements and the bank statements or any other documents that verify that you are actually the owner of the assets that you have listed.

What is a SISA loan?

Stated Income Stated Assets allow the person to state the income and the assets, which means that there is no need to verify other sources of income.

What is a No Doc Loan?

The guidelines vary according to the lender but in this type of loan you don’t have to verify anything other than your citizenship.

Will I Be Denied Because Of High Income?

It may be possible if your stated income is not the same as your title and the job description.

Is There A Minimum Credit Score?

Yes, there is a requirement for a minimum credit score but it tends to vary from lender to lender.

Is There A Minimum Down Payment Required?

Again, this varies according to the lender and the down payment is generally higher than the conventional loans.

Who Does Non-Qualified Mortgage Loans?

A lot of vendors do this, so make sure that you do your research to find the best one.

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