How to Compare Non-QM Loan Offers: Loan Estimates, Features and Fit

The surest way to compare non-QM loan offers is to get a Loan Estimate from each lender for the same type of loan, on the same day, and read them side by side. Look past the rate to the loan features that matter most with non-QM loans: whether the rate is fixed or adjustable, whether there is a prepayment penalty or an interest-only period, the total closing costs and the cash you need to close. Then ask each lender the same questions so you are comparing like with like.

Start with the Loan Estimate

The Loan Estimate is a standard form lenders give you after you apply. Because every lender uses the same layout, it is the easiest way to line up offers. The CFPB's explainer walks through it, and these are the parts to focus on:

• Loan terms. The loan amount, the rate, whether either can increase after closing, and whether there is a prepayment penalty or balloon payment.
• Projected payments. Principal and interest, mortgage insurance if any, and estimated taxes and insurance, including how payments may change over time.
• Costs at closing. Total closing costs and the estimated cash to close.
• Loan costs. Origination charges, which include points, plus services you can and cannot shop for.
• Comparisons. The APR and the Total Interest Percentage, which help you weigh total cost over time.
• Other considerations. Rate lock details, assumability, and the loan officer's name and licensing information.

Check the basics first: your name, the loan type, the product, the loan amount and the purpose. A mistake there means you are not comparing the loan you actually want.

Compare like with like

Offers only line up when they describe the same loan. Ask every lender to quote:

• The same loan amount and the same down payment.
• The same documentation type, such as bank statements, P&L or asset depletion.
• The same rate type and the same term.
• The same prepayment penalty structure, or none.
• On the same day, since pricing moves.

Also note whether each rate is locked. Some lenders lock when they issue the estimate and some do not, and an unlocked rate can change.

Fixed or adjustable, in words

A fixed rate is set at closing and stays the same for the life of the loan. An adjustable rate often starts lower, but only for an initial period. After that, it adjusts at regular intervals based on an index plus a margin the lender sets, and your payment can go up. Caps may limit how much it can change at the first adjustment and later ones.

Before choosing an adjustable rate, ask how high the payment could go, how often it adjusts, what the caps are and whether you could still afford the highest payment. The CFPB cautions against counting on selling or refinancing before the rate changes, since your home's value or your finances could shift.

When you compare an adjustable offer with a fixed one, look at the Projected Payments table on each Loan Estimate. It shows how the payment can change over time, which tells you more than the starting rate alone.

Prepayment penalties: a feature to ask about

A prepayment penalty is a fee some lenders charge if you pay off all or part of your mortgage early, such as when you sell or refinance within a set period. Not every loan has one, and they show up more often on some non-QM loans, especially investment-property loans. Treat it as a feature to ask about, not something to discover at closing.

Ask each lender whether the loan has a prepayment penalty, how long it lasts, what triggers it and how it is calculated. Then ask for a quote on a similar loan without one. Sometimes accepting a penalty comes with better pricing. That trade can make sense if you expect to keep the loan for a long time, and cost you if you sell or refinance sooner than planned.

Interest-only and balloon features

Some non-QM loans offer an initial interest-only period. During that time your payment covers interest only, so your balance does not go down. When the period ends, payments rise to cover principal as well. Ask what the payment will be after the switch, and make sure you can afford it. Balloon payments, where a large lump sum is due at the end, are less common on long-term home loans, but check the Loan Terms section to be sure.

Points and lender credits

Points are upfront charges that can lower your rate. Lender credits do the reverse, lowering your closing costs in exchange for a higher rate. Neither is right or wrong, but they make offers look different. Compare each offer's origination charges, rate and APR together, and ask each lender to show you the same offer with and without points.

Broker or lender

A lender provides the loan funds. A broker does not lend its own money; it helps you find lenders or loan options and is paid a fee tied to your loan. Some companies act as both. A broker who works with several non-QM investors can shop your scenario across programs, while a direct lender offers its own products. Whichever you use, ask whether a broker is involved, and compare terms, rates and fees the same way.

Services you can shop for

The Loan Estimate separates services you cannot shop for, such as the appraisal and credit report the lender orders, from services you can shop for, such as title services and sometimes a survey. For the shoppable ones, you can choose your own provider. Ask for the lender's list, get quotes, and compare. You can also shop separately for homeowner's insurance, and you can confirm property tax estimates with your local tax office so the projected payment is realistic.

Look at cash to close, not just costs

Cash to close combines your down payment, closing costs and any deposits or credits. Two offers with similar closing costs can still need different amounts of cash if one includes lender credits or a different down payment. Make sure the cash to close on each estimate is money you actually have available, and remember that the lender will ask you to document where it came from.

Questions to ask every lender

• Is the rate fixed or adjustable, and how could it change?
• Is there a prepayment penalty? What would the offer look like without it?
• Is there an interest-only period, and what happens when it ends?
• Is the rate locked, and until when?
• How did you calculate my qualifying income?

Final check before closing

You will receive a Closing Disclosure at least three business days before closing. Compare it line by line with your Loan Estimate and ask about anything that changed. Programs vary by borrower, property and investor, and every loan is subject to credit approval.

Frequently asked questions

Next steps

• Non-QM Loans
• Interest-Only Mortgages
• Non-QM Loans in Florida
• Non-QM Loans in New York
• Non-QM Loans in New Jersey
• Non-QM Loans in Pennsylvania
• Non-QM Loans in Connecticut
• Non-QM Loans in Virginia

Sources

• CFPB: Loan Estimate explainer
• CFPB: What is a prepayment penalty?
• CFPB: What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan?
• CFPB: What is the difference between a mortgage lender and a mortgage broker?
• CFPB: What is a Closing Disclosure?
• CFPB: What is a Qualified Mortgage?