Which of the following is most likely to have higher costs: QM loan or Non-QM loan?

Prepare for the Qualified and Non-Qualified Mortgage Test with comprehensive flashcards and multiple-choice questions. Ensure you understand every concept with detailed hints and explanations.

Non-QM loans carry higher costs because they don’t fit the Qualified Mortgage rules that provide lenders with safer, more predictable pricing. QM loans are under strict underwriting and have protections (like a defined ability-to-repay standard and limits on certain risky features), which tends to keep rates and fees more stable. Non-QM products, by design, require lenders to price in more risk since they lack those safe harbors and often involve alternate documentation, higher risk features, or more complex underwriting. To compensate for the extra risk and absence of QM protections, lenders typically charge higher interest rates and higher fees or points. While government-backed loans can have competitive costs due to the backing, the question focuses on general pricing, and the typical outcome is that Non-QM loans are more expensive.