Prime Borrowers Seeking Flexibility

QM loans generally restrict a borrower’s Debt-to-Income ratio (DTI) to 43% or less. Non-QM loans offer flexibility by frequently allowing higher DTI ratios. Many Non-QM programs, such as our Advantage Standard/Expanded and our Prime Non-QM Series, cap the DTI at 50%. In certain highly qualified scenarios, DTI limits may even reach 55%.

Yes, Non-QM loans play a crucial role in serving jumbo loan borrowers. Programs like our Horizon Elite Jumbo product are competitively priced and tailored for highly qualified borrowers, offering loan amounts up to $5,000,000 for primary residences. Even within broader programs, the highest LTVs are typically reserved for prime borrowers seeking large loan sizes, such as those with FICO scores of 740+ purchasing loans up to $2.0MM.

The primary trade-off is cost. Non-QM loans typically carry higher interest rates than traditional QM loans. For example, in 2024, the average initial 30-year interest rate for Non-QM loans was 6.7%, which was higher than the 6.4% average for qualified mortgages. Additionally, Non-QM loans may require a larger down payment and can have higher fees.

Yes. While conventional loans require waiting periods (typically two to seven years) after events like bankruptcy or foreclosure, Non-QM loans can allow borrowers to qualify with no waiting period after a housing event. Programs often require a significant seasoning period (e.g., 4+ years for the Sharp Expanded program) to achieve the highest credit quality, but options exist for those recovering from recent events.

“Borrowers with significant assets but limited income” are served by Asset Depletion or Asset Qualifier loans. These alternative documentation methods allow the borrower to use their liquid assets (such as checking, savings, investment accounts, or retirement funds) to calculate an imputed income stream or qualify based on their substantial assets alone, bypassing the use of tax returns or W-2s. This allows them to finance purchases while keeping their investment portfolios intact.

A key feature sought by prime borrowers is Interest-Only (IO) payments. IO options are frequently offered across various Non-QM programs, including those with flexible documentation like the Sharp Expanded program. These loans often have a defined IO period, such as 10 years, before fully amortizing over the remaining term. Non-QM loans also allow for loan terms longer than the QM maximum of 30 years, such as 40-year fixed terms.

A prime borrower would choose a Non-QM loan to access flexible loan features that are strictly prohibited under the CFPB’s QM regulations. QM loans cannot have risky features, including negative amortization, balloon payments, or loan terms exceeding 30 years. Non-QM loans offer these structural flexibilities, such as Interest-Only payments or alternative documentation.

A “Prime Borrower” in the Non-QM space is generally a highly creditworthy individual who simply doesn’t fit the strict conforming criteria. In 2024, the average credit score for Non-QM borrowers was 776, which is very close to the average of 781 reported for conventional Qualified Mortgage (QM) borrowers. These borrowers are often described as “prime non-QM borrowers” who have pristine credit but are seeking a loan with specific features, such as interest-only payments, or need an alternative way to document their income.