If you’re thinking of buying a home, you’ll likely work with a mortgage broker who will help you explore your home loan options, including qualified and non-qualified mortgages. Everybody’s lifestyle and financial situation is different, so loan options vary to accommodate a wider range of people. So, what is the difference between a qualified mortgage and a non-qualified mortgage?
Home loans are our specialty at Champions Mortgage. Consult our guide below to learn about these mortgage options and how to decide which is best for you.
What’s a Qualified Mortgage?
A qualified mortgage or QM loan adheres to all consumer protection requirements determined by the Consumer Financial Protection Bureau. Borrower requirements include having a reasonable debt-to-income ratio and a good credit score. People with this kind of loan are less likely to get mortgage products with unusually low monthly payments that skyrocket after the introductory period.
To qualify for an OM loan, borrowers cannot:
- Have a DTI that exceeds 43% to 57%, depending on the mortgage product you get
- Invest in a loan with a term period exceeding 30 years
- Pay fees and costs over a certain threshold
What Is a Non-Qualified Mortgage Loan?
With non-QM loans, borrowers don’t meet the requirements for qualified loan eligibility. They’re uninsured, non-traditional home loans that work best for people who make enough money to pay for a house, but not through a traditional job that can pass standard income verification checks. It’s an option for many people, including:
- Entrepreneurs
- Artists
- Self-employed professionals
- Contractors
- Independent business owners
- Retirees
- Hospitality workers
Non-qualified mortgage guidelines require lenders to analyze borrowers’ ability to repay, check their credit history, and review the cash flow to and from personal and business bank accounts.
How Do Both Home Loan Options Differ?
What’s the difference between a qualified mortgage and a non-qualified mortgage? These home loan options have different rules and regulations. The down payment, repayment scheduling, and DTI requirements are less strict with non-QM loans than they are for QM loans.
Most people get qualified mortgages because they meet the CFPB’s regulations. Non-QM mortgages are usually more suitable for those who are self-employed or have income that’s stable but not easily verifiable. They’re also ideal for people with higher debt levels or low credit scores.
Get More Guidance About Home Loans From a Respected Lender
Understanding the difference between a qualified mortgage and a non-qualified mortgage will help you select the right option for your financial situation and needs. For additional guidance and to explore your lending options, turn to Champions Mortgage in Houston, Texas. Our specialists can review borrower requirements, such as ideal credit scores for a mortgage, to help you obtain mortgage approval.
Contact Champions Mortgage today at (281) 727-2500 to get started.
Frequently Asked Questions
Uncover more facts about qualified and non-qualified mortgages below.
What Are the Disadvantages of Using a Non-Qualified Mortgage To Buy a Home?
A typical downside of non-qualified home loans is higher interest rates. The closing costs on the house may also be higher.
Does a Qualified Mortgage Come With Specific Legal Protections?
Lenders have legal protections for the qualified mortgages they offer because they prove that lenders ensured borrowers could repay their loans. The protection shields lenders from lawsuits claiming that they didn’t verify the borrower’s ability to pay.
How Do I Know Which Loan Is Right for Me?
To determine whether a qualified mortgage or a non-qualified mortgage is right for you, consider your debt-to-income ratio, credit score, and income. A non-QM is better for an unstable income and a low credit score, while a qualified loan is better if your income is stable and you have a low DTI with a good credit score.
