Answers · Self-employed
Are non-QM loans more expensive, and when are they worth it?
Usually, yes. A non-QM loan typically costs more and asks for a larger down payment than a conventional loan, because the lender is taking on a file the standard rules do not fit. It is worth it when it gets you a home or a deal that makes sense on its own numbers, and when you have a realistic path to a cheaper loan later.
Written by Andrew Malm, Senior Loan Originator, NMLS# 2663426. Last reviewed .
Non-QM means the loan falls outside the Qualified Mortgage rules. It does not mean subprime, and it does not mean unregulated. The lender still has to document that you can afford the loan. It uses bank statements, assets or rent to do it instead of the standard forms.
The extra cost buys flexibility: income read from deposits instead of tax returns, a recent credit event a standard loan would not allow yet, or a property that does not fit the box. If none of those apply to you, you probably do not need one, and I will say so.
The question I ask is what waiting costs. If one more year of tax returns gets you a conventional loan, and the house can wait, waiting may be the better deal. If the house or the rental is right and the numbers work at the higher cost, buying now and refinancing later can be the better one.
Refinancing later is a plan, not a promise. The market moves, and your next tax return has to show the income. Check for a prepayment penalty before you count on it, especially on an investment property.
What I'd do
- Ask for a side-by-side: the non-QM loan today against the conventional loan you could qualify for later.
- Look at total cost over the time you expect to keep the loan, not one number.
- Ask whether there is a prepayment penalty and when it ends.
- Make sure the payment works on its own. Do not buy a house that only works after a refinance.
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