Non-Qualified Mortgage (Non-QM)
A mortgage that doesn't meet the Qualified Mortgage standards set by federal regulation, often used for self-employed borrowers or non-standard income.
After the 2008 housing crisis, regulators created the Qualified Mortgage (QM) standard, a set of underwriting rules loans must meet to receive certain legal protections for lenders. Loans that step outside those rules are non-QM, but that doesn't make them subprime, many are responsibly underwritten using alternative documentation.
The most common non-QM use case is self-employed borrowers whose tax returns understate cash flow because of business expenses, depreciation, or pass-through structures. Bank-statement programs, asset-depletion programs, and investor cash-flow loans all live under the non-QM umbrella.
Non-QM loans typically carry higher rates than QM equivalents because they don't fit into standard secondary-market buckets. For self-employed borrowers and investors with complex profiles, that premium is often a worthwhile trade for getting a deal done at all.
Related terms
Other terms you'll see alongside Non-Qualified Mortgage
A mortgage that exceeds the conforming loan limit and therefore cannot be sold to Fannie Mae or Freddie Mac.
The lender's formal review of a loan application to confirm it meets program guidelines and is acceptable to fund.
Mortgages not insured or guaranteed by a government agency, typically sold to Fannie Mae or Freddie Mac.
A property purchased not to live in but to rent out or hold for appreciation, with stricter financing terms.
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