Non-QM and everything else

What non-QM means

"QM" stands for Qualified Mortgage, which is a federal standard defining loans that meet specific ability-to-repay criteria. Non-QM loans sit outside that standard. That sounds ominous and mostly isn't, because what it actually means is that the lender keeps the loan and writes its own underwriting rules instead of following Fannie Mae's.

These carry higher rates, because the lender is the one holding the risk. But they are not subprime, and they are not the products that caused 2008, since those had no documentation and no ability-to-repay analysis at all. Non-QM loans are fully documented, they just document you differently than a conventional loan does.

What's on this shelf

• Asset depletion, or asset qualifying. Substantial assets, little income. The lender converts your portfolio into a qualifying income figure. Common for retirees, and for people who just sold a business.
• Recent credit events. A bankruptcy, foreclosure or short sale more recently than conventional or FHA seasoning allows. Programs exist as soon as one day out of a completed event, at meaningful cost.
• Foreign nationals. No U.S. credit, no Social Security number, buying U.S. property. Typically 25–30% down.
• Profit-and-loss only. A CPA-prepared P&L instead of returns or bank statements.
• 1099 only. Qualify on your 1099s with an expense factor applied.
• Land and lot loans. Raw land, buildable lots, acreage.
• Commercial and mixed-use. Small commercial, multifamily above four units, mixed-use buildings.
• Non-warrantable condos. Buildings Fannie Mae won't approve, usually because of high investor concentration, litigation, or inadequate reserves. Very live in Portland right now, and one of the most common reasons a condo purchase falls apart.

How I'd rather you use this page

Don't try to diagnose yourself off a list. Describe the situation in plain language, meaning what you're buying, what makes it awkward, and what somebody else has already told you, and then let me match it to a program. Twenty-two years of doing this means the pattern-matching is the part I'm actually good at.

And if the honest answer is that it isn't financeable right now, I'll tell you that too, along with what would have to change and roughly how long that would take. That's a lot more useful to you than a maybe.

Common questions

Are these predatory?

No. They're fully documented loans with a real ability-to-repay analysis, priced for the risk the lender is keeping. They are more expensive than conventional, which is exactly why I'll always check conventional first.

Can I refinance out later?

Usually, and that's often the plan going in. Use non-QM to get the property, then refinance conventionally once your returns, your credit or your seasoning catch up.

How much more do they cost?

It varies too much by program and by profile for me to publish a number I'd stand behind. Send me the specifics and I'll quote you the actual spread.