Hello Friends:
Spring is finally here! Sure, it’s off to a rather chilly start, but even so, we’ve had some beautiful weather. I don’t know about you, but I want to get outside and enjoy those blue, blue skies. Do you remember that little rhyme about spring a lot of us learned in grammar school? It went something like this:
Spring has sprung.
The grass is riz.
I wonder where all the flowers is!
It’s a silly little rhyme, but for me it brings a smile.
The weather also brings a smile to Sellers and Homebuyers. It’s that time of year when the market picks up and a flurry of activity starts. For homebuyers especially, it’s time to start thinking about financing.
As a real estate agent, you work hard to match your clients with the perfect property. But finding the right home is only half the equation—the right mortgage is just as crucial. Understanding the differences between Qualified Mortgages (QMs) and Non-Qualified Mortgages (Non-QMs) can help you better serve your clients and close deals with confidence.
Let’s break down what makes these mortgage types distinct and how each can benefit your buyers.
What Is a Qualified Mortgage (QM)?
A Qualified Mortgage is a home loan that meets the lending standards set by the Consumer Financial Protection Bureau (CFPB). These mortgages are designed to provide stability and borrower protections, ensuring that loans are made only to those who can reasonably afford them.
Key Features of QMs:
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Ability-to-Repay (ATR) Rule Compliance: Borrowers must demonstrate sufficient income, employment, and credit history to afford the loan.
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No Risky Loan Features: QMs prohibit negative amortization, interest-only payments, and balloon payments.
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Debt-to-Income (DTI) Limit: Most QMs require a maximum DTI of 50-54% to ensure borrowers have manageable financial obligations.
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Standardized Loan Terms: QMs have fully amortizing payments and cannot exceed 30-year terms.
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Safe Harbor Protections: Lenders originating QMs receive legal protections, making these loans more secure for both borrowers and institutions.
Benefits of QMs for Homebuyers and Agents
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Easier Loan Approval: Because QMs follow strict guidelines, buyers with solid financials and strong credit scores have a smoother approval process.
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Lower Interest Rates: Lenders consider QMs lower-risk, resulting in more competitive rates for borrowers.
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Faster Closings: With clearly defined criteria, QMs often move through underwriting more quickly, helping you close deals efficiently.
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Predictability for Buyers: Fixed terms and fully amortizing structures mean borrowers won’t encounter unexpected payment increases.
What Is a Non-Qualified Mortgage (Non-QM)?
Non-Qualified Mortgages are home loans that don’t meet the strict criteria set for QMs. However, this doesn’t mean they’re subprime or risky; they simply allow for more flexibility in borrower qualifications.
Key Features of Non-QMs:
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Flexible Income Verification: Borrowers can use alternative income documentation, such as bank statements, asset depletion, or rental income, instead of traditional W-2s and tax returns.
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Higher DTI Ratios Allowed: Some Non-QMs allow DTIs above 50% for well-qualified borrowers with strong compensating factors.
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Interest-Only Payment Options: These can be beneficial for high-net-worth borrowers who prefer lower initial payments.
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Balloon Payments & Other Features: While not typical, some Non-QMs include structured balloon payments tailored to specific financial strategies.
Benefits of Non-QMs for Homebuyers and Agents
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Expands Client Eligibility: Self-employed borrowers, retirees, and investors often struggle to qualify for traditional QMs due to irregular income—Non-QMs provide a viable alternative.
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Higher Loan Amounts: Non-QMs may allow jumbo loans that exceed conventional loan limits, ideal for luxury property buyers.
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Credit Score Flexibility: Borrowers with recent credit events (e.g., bankruptcy or foreclosure) may still qualify for a Non-QM under the right conditions.
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More Options for Real Estate Investors: Non-QMs include DSCR (Debt-Service Coverage Ratio) loans, which allow rental income to be used for qualification rather than personal income verification.
Which Mortgage Is Right for Your Client?
The choice between a QM and a Non-QM depends on your buyer’s financial situation and long-term goals.
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For borrowers with steady income, strong credit, and conventional needs: A QM is likely the best fit.
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For self-employed buyers, investors, or those with unique financial situations: A Non-QM may be the right solution.
By understanding both mortgage types, you can guide your clients toward the best financing options and close deals more effectively.
Let’s Find the Right Loan Together
I can help your buyers secure the right financing with confidence and peace of mind. Whether your client needs a QM or a Non-QM, I’m here to provide expert guidance and tailored solutions. Call me today to discuss how we can help your buyers get the financing they need! I’m always available at (865) 745-5626.
Here’s to proper financing!
P.S. Don’t let your buyers settle for ineffective financing. Let’s guide them toward the best financing options together. I’m available at (865) 745-5626.
Food For Thought:
Historic homes certainly come with charm, but they can also come with surprises. Buying a historic home in East Tennessee is like adopting a beautiful old hound dog—full of character, rich in history, but occasionally prone to unexpected messes. Those stunning hardwood floors? They might be hiding a family of creaky floorboards with opinions on your every step. That grand clawfoot tub? It probably weighs as much as a small car, and the plumbing may date back to the Civil War.
Of course, historic homes have undeniable charm—towering mantels, handcrafted details, and stories woven into every brick and beam. But before you fall in love with a 19th-century beauty, check under the hood (or, in this case, the foundation). Outdated wiring, lead paint, and drafty windows can add up to a restoration project worthy of its own HGTV show.
That said, if you’re up for the adventure, a historic home can reward you with timeless elegance and a connection to East Tennessee’s rich past. Just make sure you have a solid home inspection—and maybe a good electrician, plumber, and exterminator on speed dial.
Happenings:
Easter is just around the corner and you know what that means. Easter egg hunts! Did you know that World’s Fair Park hosts one of the biggest Easter egg hunts in East Tennessee? Thousands, yes, thousands of eggs are hidden across the park. There’s also an Easter egg hunt by boat! Douglas Lake and Norris Lake host hunts where kids search for floating eggs. That’s crazy! And not to be outdone, some communities even host glow-in-the-dark egg hunts with light-up eggs. Hmmm…I think I’ll stick with the standard egg hunt. How about you?