Understanding Non-QM Mortgage Rates and Pricing in Colorado

Non-QM mortgage rates in Colorado are one of the most common questions I hear from home buyers and homeowners in Centennial, Lone Tree, Parker, and across the Denver metro area. Borrowers often ask why Non-QM rates are higher than conventional or government loans, especially when they have solid credit and strong income.

The short answer is flexibility and risk. The longer answer involves how Non-QM pricing works and what factors lenders consider when setting rates and costs. Understanding this upfront helps avoid surprises and leads to better loan decisions.

Why Consumers See Higher Non-QM Mortgage Rates

Non-QM loans are designed for borrowers whose financial profile does not fit standard agency guidelines. That flexibility is valuable, but it comes with differences in how loans are priced.

Here are the main reasons Non-QM mortgage rates are higher than conventional loans:

• No agency backing
  Conventional loans are backed by Fannie Mae or Freddie Mac. Non-QM loans are funded by private investors, which increases risk and affects rates.
• Alternative income documentation
  Using bank statements, asset depletion, or DSCR instead of tax returns introduces variability that traditional guidelines do not account for.
• Smaller investor market
  Conventional loans trade in a massive secondary market. Non-QM loans are sold to a smaller group of investors, which impacts rate competitiveness.
• Capital and compliance requirements
  Lenders must hold more capital and reserves on Non-QM loans, which is reflected in rates and fees.

For official guidance on Qualified Mortgage standards, the Consumer Financial Protection Bureau provides helpful explanations:
CFPB Ability-to-Repay and Qualified Mortgage rule

Rates vs Pricing: What’s the Difference?

Most consumers focus on the interest rate, but lenders look at pricing, which includes the full cost structure of the loan.

Non-QM pricing is made up of:

• Interest rate
• Points or lender fees
• Risk-based adjustments
• Program-specific features like interest-only or DSCR
• Optional prepayment penalties

Two borrowers can have the same rate but very different overall pricing depending on how the loan is structured.

Key Factors That Impact Non-QM Pricing

While rates grab attention, these factors determine where your pricing ultimately lands.

Credit Score

Higher credit scores generally lead to better Non-QM pricing. Even small differences in score can affect rate options.

Loan-to-Value (LTV)

Lower LTV loans typically receive better pricing. Larger down payments or more equity reduce investor risk.

Loan Program Type

Different Non-QM programs carry different pricing profiles, including:

• Bank statement loans
• DSCR investment property loans
• Asset depletion programs
• Interest-only options

Each program is priced based on its risk characteristics.

Property Type and Occupancy

Pricing may vary based on whether the property is:

• A primary residence
• A second home
• An investment property
• A condo or non-warrantable property

Investment properties and condos often come with higher rate adjustments.

Prepayment Penalties

Some Non-QM loans offer lower rates in exchange for a prepayment penalty, typically one to three years. For borrowers planning to refinance or sell, this can be a strategic trade-off.

Why Higher Non-QM Rates Can Still Be the Right Choice

Even with higher rates, Non-QM loans often allow borrowers to:

• Qualify using real cash flow instead of tax returns
• Purchase or refinance without waiting years
• Invest in real estate using DSCR qualification
• Build equity and refinance into a conventional loan later

For many borrowers, waiting to qualify for a traditional loan can cost more in missed opportunities than the difference in rate.

Non-QM Mortgage Rates Are Highly Individualized

One important takeaway is that Non-QM mortgage rates in Colorado are not one-size-fits-all. Loan structure, documentation, and long-term strategy all play a role in pricing.

This is especially true in competitive markets like Centennial, Greenwood Village, Highlands Ranch, and Castle Pines, where timing and loan flexibility matter.

Final Thoughts

Understanding why Non-QM mortgage rates are higher helps borrowers make confident, informed decisions. The rate reflects flexibility and access, not borrower quality. When structured correctly, a Non-QM loan can be a powerful stepping stone toward long-term financial goals.

If you want to explore Non-QM options or understand what rates and pricing could look like for your situation, reach out anytime at rbaxter@choicemortgage.com or call (303) 670-0137.

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