Bridging the Cost Gap: A Closer Look at Non-QM Mortgage Loans and Hard Money
6 minute read
October 31, 2023


In recent years, especially during the current turmoil of interest rates, the mortgage sector has witnessed a significant evolution with the emergence of alternative lending options.

Amidst these developments, non-qualified mortgage (non-QM) loans and hard money loans have notably gained traction among borrowers with non-traditional income sources or credit challenges.

As these alternative lending options continue to evolve and expand, a noteworthy trend is the narrowing expense gap between non-QM loans and hard money loans.

Essentially, borrowers who have limited options for traditional loans have passed by hard money loans because of their higher overall costs.

But, as many are finding out, this ‘expense gap’ has narrowed to the point where hard money is fast becoming the go-to option for funding in the field of non-qualified mortgage loans.

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The evolving mortgage landscape

The mortgage industry’s complexion is continually changing, reflecting the economic realities and regulatory adjustments of a market in flux.

These dynamics have paved the way for more flexible lending solutions like non-QM and hard money loans, providing a lifeline for many borrowers who fall outside conventional lending criteria.

Non-qualified mortgage (non-QM) loans

Non-QM loans are a category of loans that don’t adhere to the strict underwriting guidelines of Qualified Mortgage (QM) rules. They cater to a diverse range of borrowers, including:

  • Self-employed individuals
  • Real estate investors
  • Those with a unique credit history
  • Others who fall outside the general borrowing demographics

Non-qualified mortgage loans fill an essential lending gap left by the restrictions of federal and state regulations.

The expense gap narrowing | Historical cost differences

Traditionally, non-QM loans were perceived as a more cost-effective alternative to hard money loans due to their lower interest rates and fees.

However, the cost dynamics between these lending options have been shifting over time.

Recent trends in mortgage pricing

Recent market analyses reveal a diminishing cost disparity between non-QM and hard money loans.

The competitive pricing of hard money loans, coupled with their inherent advantages such as speed and flexibility, now presents a compelling case for many borrowers exploring alternative financing solutions.

Hard money loans: a competitive alternative

In the alternative lending arena, hard money loans have emerged as a viable competitor to non-QM loans, particularly in scenarios requiring swift funding and a straightforward approval process.

What are hard money loans?

Hard money loans are short-term lending options, primarily backed by the value of the property which is often referred to as Collateral, that is being financed rather than the borrower’s creditworthiness.

These loans are often funded by private investors or companies, which allows for faster and more flexible lending decisions compared to traditional bank loans.

Cost comparison: hard money vs non-QM loans

While hard money loans were historically viewed as more expensive due to higher interest rates, the narrowing expense gap with non-QM loans is changing this narrative.

Recent trends suggest a competitive re-positioning of hard money loans, especially when factoring in the total cost of borrowing, which includes origination fees, interest rates, and other associated costs.

Benefits of opting for hard money

The benefits of hard money loans extend beyond just the monetary aspect, making them an attractive alternative for various financing needs.

Speed and flexibility

One of the hallmark advantages of hard money loans is the speed at which they can be processed.

Unlike traditional or non-QM loans, hard money loans can often be secured within days, a critical advantage in time-sensitive scenarios such as real estate auctions or foreclosure avoidance.

Furthermore, the flexibility inherent in hard money lending—minimal documentation requirements and personalized repayment structures—appeals to borrowers seeking a hassle-free financing route.

Ideal scenarios for hard money financing

Hard money loans shine in scenarios where conventional financing routes fall short.

Hard money loans are particularly well-suited for real estate investors looking to secure funding quickly for time-sensitive projects.

Additionally, borrowers with unique financial profiles may find the hard money lending process less cumbersome and more accommodating to their needs. Hard Money Lenders often work with the borrowers to figure out the best route to calculate their financials and ability to afford a loan, whether through tax returns, bank statements, W2’s, etc.

Whether it’s bridging a short-term financial gap or capitalizing on a lucrative investment opportunity, hard money loans offer a competitive and pragmatic solution in today’s evolving mortgage landscape.

Case study: comparing loan costs

A practical examination of loan costs between non-QM and hard money loans unveils an enlightening picture of the evolving lending landscape.

Scenario analysis

Consider a real estate investor, John, who seeks a loan to quickly capitalize on a lucrative property deal. He explores both non-QM and hard money loan options.

While the Non-QM loan offers a slightly lower interest rate, the hard money loan promises a faster closing time.

The slight cost advantage of the non-QM loan is overshadowed by the opportunity cost of a delayed closing, which could potentially result in losing the deal altogether.

Real-world implications

This scenario underscores the significance of evaluating the total cost and benefits associated with each lending option.

The narrowing cost gap between non-QM and hard money loans is often outweighed by the speed, flexibility, and opportunity that hard money loans provide, especially in time-sensitive or competitive real estate markets.

Overcoming common misconceptions about hard money

Amidst evolving market conditions, it’s imperative to address common misconceptions surrounding non-QM and hard money loans to make well-informed lending decisions.

Debunking hard money myths

A prevailing myth is that hard money loans are a last-resort financing option due to their traditionally higher costs.

However, with the diminishing cost disparity and the unique advantages they offer, hard money loans are becoming a first choice for many, especially real estate investors and individuals with non-traditional income sources.

The reality of non-QM loans

Non-QM loans are often perceived as more accessible and affordable compared to hard money loans.

While they do provide a solution for those who don’t fit the conventional lending mold, the approval process can be lengthy, and the lower interest rates may not always translate to lower overall costs, especially when time is a crucial factor.

Non-QM loans vs hard money loans: the bottom line

By debunking these myths and understanding the real cost implications, borrowers can better navigate the mortgage landscape to find lending solutions that meet their unique needs and circumstances.

The narrative of hard money loans as merely a last-resort option is changing—and they are increasingly being recognized for their competitive positioning in the market.

Similarly, while non-QM loans provide a viable solution for many, understanding the full scope of associated costs, benefits, and potential delays is crucial for making an informed decision in the current mortgage environment.

Hard money financing options with Marquee Funding Group

Hard money financing is an ideal choice for a diverse group of borrowers, including:

  • Small business proprietors
  • Self-employed professionals
  • Property refurbishers
  • Real estate investors
  • Anyone encountering hurdles in proving their eligibility to traditional lenders
Present your loan scenario to Marquee Funding Group today.

Our flexible and practical stance on hard money lending empowers us to help you uncover a fitting solution specially crafted to meet your unique borrowing requirements.

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