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What Are The Pros & Cons of Non-QM Loans?

The landscape of the mortgage industry have significantly and rapidly in recent years, making it difficult for many borrowers to access the funding they need. At the same time, very few borrowers are aware of the benefits of Non-QM (Non-Qualified Mortgage) loans. Unlike traditional Qualified Mortgages (QM), which follow strict guidelines set by regulatory bodies like the Consumer Financial Protection Bureau (CFPB), Non-QM loans provide an alternative financing option for borrowers who may not fit within the rigid criteria of conventional mortgages. Here are some of the PROS and CONS to evaluate when considering a Non QM versus a Conventional Loan.

Pros of Non-QM Loans:


Flexibility in Qualification: One of the biggest advantages of Non-QM mortgage loans is the flexibility they offer in qualification requirements. Conventional mortgages often rely on standardized underwriting rules, making it challenging for certain borrowers to meet the stringent criteria. Non-QM loans, on the other hand, allow lenders to consider various factors beyond the traditional credit score and debt-to-income ratios. Borrowers with irregular income, self-employed individuals, or those with non-traditional sources of income can find Non-QM loans to be a more accessible option.

Less Documentation Required: Non-QM loans often allow for alternative documentation options, such as bank statements or asset-based income verification, which can be helpful for borrowers who may not have traditional income documentation.


Streamlined Application Process: Traditional mortgage applications can be complex and time-consuming due to their extensive documentation requirements. Non-QM loans often streamline the process by focusing on the borrower's ability to repay the loan rather than imposing a one-size-fits-all approach. At Northwest Alternative Mortgage, our Non-QM loan process cuts out unnecessary hoops borrowers need to jump through, reducing the time and stress involved in the application process.


Debt Consolidation: For borrowers with multiple existing debts, Non-QM mortgage loans can present an excellent opportunity for debt consolidation. By combining high-interest debts into a single, more manageable mortgage payment, borrowers can oftentimes reduce their financial burden and improve their overall financial health. While this option may not apply to every borrower, our team at Northwest Alternative Mortgage will always connect you with the best financing solution based off of your unique situation!


Real Estate Investment Opportunities: Investors in the real estate market can also benefit from Non-QM mortgage option such as DSCR Loans and Bank Statement Loans. These loans provide alternative financing solutions for real estate investors with multiple properties or complex income structures. Additionally, Non-QM loans can offer more favorable terms and conditions compared to traditional investment property loans. Non-QM loans are not just limited to traditional single-family homes. Borrowers interested in financing unique or unconventional properties such as multi-unit buildings, mixed-use properties, or even second homes can find viable options with Non-QM mortgages. This opens up opportunities for borrowers seeking to diversify their real estate investment portfolios!


Faster Closing Times: Due to the more flexible nature of Non-QM loans, the approval and closing process can often be expedited. Traditional mortgages typically involve rigorous underwriting, which can prolong the closing process. With Non-QM loans, borrowers may find themselves closing on their dream home or investment property faster, allowing them to take advantage of favorable market conditions.


Credit Score Flexibility: Non-QM loans can be an excellent option for borrowers with less-than-perfect credit scores. While traditional mortgages often require higher credit scores to qualify for the best rates, Non-QM lenders are more willing to work with borrowers whose credit histories may have some blemishes. This inclusivity makes homeownership attainable for individuals who may have been excluded by conventional lending institutions.

Cons on Non-QM Loans:

  • Higher interest rates: Non-QM loans generally come with higher interest rates and fees than traditional mortgages due to the higher risk associated with these types of loans.

  • Lower availability: Since non-QM loans are not backed by government-sponsored entities, they may be less widely available than traditional mortgages.

  • Greater liability for borrowers: Non-QM loans often come with higher risk for the borrower, as they may have more stringent repayment terms and fewer consumer protections than traditional mortgages.

  • Potential for financial instability: Non-QM loans have been associated with higher default rates than traditional mortgages, which can lead to financial instability for borrowers and lenders alike.

Non-QM mortgage loans have emerged as a game-changer in the mortgage industry, offering a range of benefits to borrowers with diverse financial situations. From increased flexibility in qualification to faster closing times and expanded property options, Non-QM loans provide a pathway to homeownership and real estate investment for many who might otherwise be excluded by traditional lending practices. As the mortgage market continues to evolve, embracing the potential of Non-QM loans can be a powerful step toward making the dream of owning a home a reality for more individuals and families across the nation.


Overall, non-QM loans can be a viable option for borrowers who do not qualify for traditional mortgages or who need more flexibility in their borrowing options. However, borrowers should carefully weigh the pros and cons before deciding whether a non-QM loan is the right choice for their financial situation. To discover what lending options are available to give us a call at 503-343-7999 today!


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