Non-Qualifying Loans (Non-QM)

 Depending on the lender’s requirements, borrowers may demonstrate their ability to repay the loan using tax returns, bank statements, asset
qualifiers or 1099s. 

 Some lenders offer non-QM loans that cater to borrowers with a history of bankruptcy or foreclosure, allowing them to get a mortgage as soon as one day after the event. Comparatively, qualified mortgages may require a waiting period of one to four years after bankruptcy, and two to seven years after a foreclosure. 

 Qualified mortgages have a maximum debt-to-income ratio (the percentage of your income that goes toward monthly debt payments) of 43%, while some non-QM loans allow for ratios over 50%. 

 Non-QM loan borrowers may be required to put a minimum down payment of 10% to 20%, while the average down payment was 6% for first-time home buyers and 17% for repeat buyers in 2022, according to the National Association of Realtors. 

 Non-QM loans typically have higher interest rates than qualified mortgages. Although it may be easier to get approved than a qualified mortgage, non-QM loans are more expensive. 

Because non-QM loans don’t have to follow CFPB standards, they can’t be purchased by Fannie Mae or Freddie Mac, nor can they be backed by the Department of Veterans Affairs, U.S. Department of Agriculture, or the Federal Housing Administration. So instead, the lender is taking on all the risk of issuing the loan.