Non-QM loans are often an option for those who have had a credit event in the past – perhaps a bankruptcy or late payments on a previous mortgage. Some borrowers fall outside specific qualified mortgage requirements, such as a less than 43% debt-to-income ratio. First-time home buyers typically have a thin credit history. Self-employed borrowers, business owners, and entrepreneurs who technically ‘work for themselves’ cannot produce the traditional employment and income documentation such as a W2 to verify their income. Not everyone who wants and can afford to take out a mortgage can provide the credit history and/or employment and tax documentation necessary to obtain a qualified mortgage.
Non-QM loans, mortgages made outside the government-sponsored mortgage market, fill the void for the tens of millions of credit-worthy borrowers who don’t fit the qualified mortgage mold.
QM VS NON QM MAC
Qualified mortgages also support the risk parameters required for purchase, insurance, or guarantee through the Federal Housing Administration, Veterans Affairs, United States Department of Agriculture, or a Government-Sponsored Enterprise (GSE), such as Freddie Mac and Fannie Mae. A qualified mortgage is simply a mortgage that adheres to a set of federally mandated criteria for originating a loan. In 2014, the Consumer Finance Protection Bureau, primarily in reaction to the mortgage crisis of 2008, established the qualified mortgage.
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