What is the Difference Between a Non-QM and QM Loan?
What is the difference from a NON-QM and QM loan? Most people hear “Non-QM loan” and assume one thing…the rate is way higher. That used to be true, but not anymore.
QM Loans vs Non-QM Loans (Simple Breakdown)
Here’s the simple breakdown:
- QM loans are your traditional loans (W2 income, tax returns, standard guidelines).
- Non-QM loans are for borrowers who don’t fit that box, like self-employed buyers, investors, or those using bank statements.
Are Non-QM Loan Rates Higher?
The biggest misconception? That Non-QM rates are dramatically higher.
In today’s market, that gap is often much smaller than people think, and in some cases, surprisingly close depending on the scenario.
What Impacts Non-QM Loan Pricing?
It really comes down to:
- credit
- down payment
- assets
- and how the loan is structured
Example Scenario: QM vs Non-QM Loan Comparison
Purchase price $2.5MM, 20% down, loan amount $ 2MM, credit score 760, 1 point origination, SFR, primary residence.
- QM pricing, 6.125%, PI payment $12,152 – Full DOC only aka ( tax returns, w-2’s, paystubs, etc)
- NON-QM pricing, 6.375%, PI payment $12,476 – Full DOC, 1 year tax returns, 12 months bank statement loans, etc)
Purchase price $2MM, 30% down, loan amount $, credit score 760, 1 point origination, SFR, 4 unit investment property.
- QM pricing, 6.25%, PI payment $8,869 – Full DOC only aka ( tax returns, w-2’s, paystubs, etc)
- NON-QM pricing, 6.5%, PI payment $8,849 – Full DOC, 1 year tax returns, 12 months bank statement loans, etc)
When Non-QM Rates Are Higher
Don’t get me wrong, NON-QM rates can be much higher, but it really depends on the scenario and risk level. If you have BAD credit, recent foreclosure/BK, need higher leverage, property has some hair on it, etc then pricing can start to move higher, BUT keep in mind that NON-QM might be only option to go. If the rate is in fact that much higher then you should have a path forward to refinance out in the future.
When Non-QM Loans Make Sense
NON-QM loans could be a short-term solution in some scenarios for many reasons, credit, property, income, leverage, income, etc.
Questions About Non-QM Loans?
If you have a scenario or questions about NON-QM please reach out! BOOK A CALL WITH KENNY
