What is a non-QM loan?
A non-QM loan is a non-qualifying mortgage. That is an alternative mortgage solution that has grown in need over the past few years as an easier and faster loan product compared to traditional mortgage products. This means that the qualifications for approval and speed to close outweigh the lower interest rate of a traditional mortgage. Along with the light documentation and ability to close much quicker investors are able to purchase properties in an LLC not having the mortgage liability show up on the investor’s personal credit report. With traditional mortgage rates trending up over the past 12 months and projected to continue to climb in 2022 these non-QM programs are very competitive and a popular route that investors are leveraging.
Why would I use a non-QM loan?
Over the past few years in private lending, rental loans have grown in popularity for a myriad of reasons. With the ability to get a loan for investment properties very close to traditional rates with the ability to get financing in an LLC or entity with the approval mostly based off the properties ability to cash flow and cover the debt service and expenses many investors have capitalized in the last year and a half buying up more properties, refinancing their existing mortgage, and also potentially cashing out some of the equity from the properties value.
How has the non-QM market evolved over the past few years?
During the beginning of 2020 the non-QM market was affected like many sectors due to the COVID-19 pandemic. The uncertainty and fear that the economy would go through some turbulence caused guidelines to tighten short term and, in some cases, there was a pause completely to lending for the non-QM rental loans. As we saw the government provide stimulus and testing, we saw lending return to pre-pandemic levels. The second half of 2020 and all of 2021 the non-QM boom has continued and is poised to become even more popular with inflation concerns and traditional rates coming up from the historical low interest rate environment we experienced the past few years.