What is a non-qualified mortgage?

A non-qualified mortgage (non-QM) is a home loan designed to help homebuyers who can't meet the strict criteria of a qualifying mortgage. For example, if you are self-employed or don't have all the necessary documentation to qualify for a traditional mortgage, you might need to look at non-qualified mortgages.

The best way to understand a non-qualifying mortgage is to look at the criteria for traditional, qualifying mortgages. To qualify for a traditional mortgage, you must meet these requirements:

-Income: You must have verifiable income, including pay stubs, W-2s, and tax returns.

-Debt: Your debt-to-income ratio (DTI) must be 43% or less. This is the amount of your monthly income that goes toward your existing debts.

-Limits on fees: Points and fees on your loan cannot exceed 3% of the loan amount.

-No risky loan features: Risky features include interest-only loans (where you only pay interest without reducing the principal), negative amortization (where your principal can increase, even while you are making payments), or balloon payments (where a larger payment can be tacked on to the end of the loan).

-Loan term: The loan term must be 30 years or less.