When It Comes to Mortgages, What’s the Difference Between a QM and Non-QM Loan?

By
  • E 3 Mortgage Corp
March 16, 2022

Are you ready to buy a home but worry that you won’t qualify for a mortgage? There are options for every prospective homebuyer and you may have heard the terms “QM loan” and “non-QM loan” as you get started. Here’s some information to help you understand the difference and what it means for you.

Qualified Mortgage Loans: For Those With Strong Finances

A qualified mortgage loan follows very strict guidelines as outlined in the Dodd-Frank Act, which was enacted in 2010 to protect consumers following the 2008 financial crisis.

In a qualified mortgage:

  • The lender ensures you have a strong ability to pay—you have a steady and predictable income, an excellent credit score, low monthly expenses, and low credit usage.
  • You will not be offered a mortgage over 30 years in length
  • You will not be offered risky mortgage options like balloon payments and interest-only periods.
  • Your debt-to-income (DTI) ratio will be strongly factored to ensure you can afford the loan payments.
  • You cannot be charged upfront fees above a certain threshold.

A QM loan offers both you and the lender certain protections. You have the assurance that the loan is designed to help you succeed in paying the mortgage, and it affords the lender some legal protections. A QM is also backed by government agencies like FHA, VA, and Frannie Mae.

Non-Qualified Loans: For Those Who Don’t Meet the Criteria

A non-qualified mortgage is any mortgage loan that does not meet one or more of the guidelines for a qualified mortgage. It’s a good alternative for people who can make mortgage payments but cannot satisfy the criteria for a QM loan, such as an individual who is:

  • Self-employed
  • Has bad credit
  • Has a bankruptcy on their record
  • Has an income that varies from month to month
  • Is a foreign national
  • Is coming out of a foreclosure

A non-QM loan is more flexible and allows those with non-traditional financial situations to take certain risks, such as a repayment period over 30 years, a high up-front fee and down payment, or interest-only periods.

What Does This Mean For Me?

If you meet the criteria for a qualified mortgage, you will find the terms stricter but more secure than a non-qualified mortgage. However, if you don’t fit the mold to qualify for a QM loan for the perfect house, a non-QM loan may be a viable option.

Who Can I Talk To?

When you’re ready to discuss your options with a loan specialist, the experts at E3 Mortgage are ready to help. Get started today!

What Homeowners Say About E 3 Mortgage

Happy homeowners are our specialty! Here’s what people we’ve helped say about their E 3 experience:

“I had such a positive experience with E 3 Mortgage. They took the time to answer all my questions and walk me through the process. I highly recommend them!” - Ernsy Gauthier

“E 3 Mortgage is amazing to work with. Chris is our go-to man for all mortgage needs. He’s helped us with two purchases and was very responsive and professional.” - Daniel Alonzo

“I purchased and refinanced my home with this company, and they were very professional! Definitely recommend.” - Trinity Rice