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QM versus Non QM...What is its significance for you?

QM versus Non QM...What is its significance for you?

A Qualified Mortgage (QM) represents a definitive set of qualifying criteria as defined by the government under Federal Dodd Frank regulations.  You can think of this as a prism, more or less, with the perfect loans by definition falling inside the protective prism and all of the other loans falling outside into the Non QM or Non-Qualified Mortgage bucket. The difference between QM and Non QM to you could be something as subtle as a slightly higher debt to income ratio or slightly lower credit score or profile.  A QM loan may have the most attractive rate and cost profile for you, but you may not realistically fit into the prism and qualify.  I would venture to say that most people vacillate between the parameters of QM and Non QM throughout their lives.  Non QM doesn’t necessarily mean you are a high risk or a bad borrower and QM doesn’t necessarily insure that you will never become delinquent or default. 

For us, as potential borrowers seeking home mortgages, QM may most accurately reflect cost variables.  However, you may be disappointed.  It’s much like visiting an ice cream store that only has a couple flavors. Now don’t be sad, just know that you may have to drive across the street to the other shop where they serve Non QM. A credit score, a credit profile, an incident such as a past short sale or foreclosure, a debt to income ratio or maybe you are self-employed, all of these variables may point to you being better served with a Non QM loan. 

Now let’s say that you are quietly boasting to yourself over your pristine qualifications as you search for a home with your favorite realtor.  Oh no, you discover we have inventory problems nationwide. You cannot find anything you like in your price range but you just found a home you love at a slightly higher price, but now your debt to income ratio is just a bit stretched.  You are still presumed to be well qualified and a good risk, but unfortunately you may now be a better candidate for a Non QM loan.  This is very common and puts the differential between QM and Non QM in better perspective.

A QM loan versus a Non QM loan is more important to the large banks and lenders as it portrays risk or otherwise termed contingent liability.  After the crisis, the government felt that risk needed to be better quantified for the banks and large lenders so they created the QM category.  It’s much safer for the big banks and lenders to operate only in the pristine QM category and this is how most of the business is conducted today, but that does not mean that there is not a very attractive Non QM loan available for you should the need arise.  We specialize in Non QM for all categories of purchase, refinance, owner occupied, second home, and investor financing in Virginia, Maryland, Washington DC, and Pennsylvania.

See our other blog on Non-QM.

George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC
Mortgage Specialists - Virginia, Maryland, DC & Pennsylvania 

Other Programs:   Alt-A Investor loans-80% Full doc & 75% No Income-No Employment, FHA & VA with Lower Score Options, Fixed & Variable Jumbos-Traditional & Private Label Reverse, Self-Employed Bank Statement & Asset Dissipation Programs. Full range of Non QM Loans for expanded qualification.

Questions/Comments encouraged.

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