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Non-QM has become a new buzz word. It seems all the lenders these days are offering a hip new Non-QM product and encouraging brokers to broker non-QM loans. So, what actually is non-QM? A good place to start is in defining QM or Qualifying Mortgage.
The concept of a Qualifying Mortgage originated as a result of the 2008 financial housing crisis. Leading up to the financial crisis, there were all kinds of innovative loan products with creative rate structures on the market that ultimately borrowers couldn’t pay back. To reign in lenders and ensure that borrowers can afford the loans they are receiving, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act that put into place the QM rule. It is a complicated rule, but ultimately QM lenders have a strict process on how to determine the borrower’s ability to repay a loan with an emphasis on debt-to-income ratio.
The technical requirements of the QM rules, though, exclude many creditworthy Americans. For instance, what happens when the self-employed contractor with multi-millions doesn’t qualify for a qualifying mortgage because he doesn’t have the documentation needed? The guy with the ten-million-dollar net worth and perfect credit should be an ideal borrower, right? In the last three years, lenders and the capital markets have started to serve these people and fill the gaps. Capital markets have gotten increasingly comfortable with non-QM loan products, and lenders have gotten increasingly better at putting reasonable processes into place to determine the borrower’s ability to repay.
Essentially, a non-QM mortgage is a mortgage that fits outside the rules of a qualifying mortgage. This covers many buckets such as jumbo loans, bank statement loans, foreign national loans, and more. It can also include investor loans, such as Visio’s Rental360 Loan Program. Here’s the catch; investor loans can also be QM loans, yet the investor loans that meet the QM criteria are extremely difficult for professional real estate investors to qualify for. That’s why Visio’s non-QM investor loan program is designed to help investors grow their rental portfolios.