A Qualified Mortgage or QM Mortgage is one that is backed by the government such as Fannie Mae, Freddie Mac, FHA or VA. These mortgages conform to government guidelines and require income verification, higher credit scores, and favorable longer-term payment histories. Additionally, collateral, assets, down payments, debt-to-income ratios, loan to value ratios, and loan limits must meet certain requirements to qualify. Due to the more conservative guidelines, these loans typically have lower interest rates and fees. The amount of documentation required to qualify can vary as well.

QM Mortgage requirements can include but are not limited to:

Full income verification

Asset verification

Higher Credit scores

No late credit payments

A Non-Qualified Mortgage or Non-QM Mortgage is not government-backed. They are portfolio loans offered by independent lenders. Non-QM loans allow for more flexibility such as larger loan sizes, alternative income qualifications, and flexible credit guidelines that can provide financing where Qualified Mortgages do not. These mortgages carry higher risk while also providing a lot more flexibility to qualify. Because of this, they usually have higher interest rates and fees.

Non-QM Mortgage requirements can include but are not limited to:

Limited income documentation

Lower credit scores

Higher loan limits

Recent or late credit events

How do you know which mortgage is right for you? Much of it depends on the type of financing you're needing and the collateral at hand. Your ability to show income, assets, credit history, and loan size are the primary criteria which determine the type of loan is the right fit. Talk with your loan originator who can suggest the best option for you.

Bottom line: Although qualification guidelines vary, both QM and Non-QM mortgage decisions will weigh on your ability to repay the loan.

Source: Mortgage Market Guide