Non-QM Loans
Who Is This Loan For?
- Self-employed business owners who write off heavily on taxes
- Real estate investors needing financing based on rental income
- Foreign nationals and non-permanent residents without U.S. tax returns
- Retirees and high-net-worth individuals with assets but low taxable income
- Borrowers with recent credit events (bankruptcy, foreclosure, short sale)
- Gig economy workers and 1099 contractors with variable income
What Is a Non-QM Loan?
A Non-QM (Non-Qualified Mortgage) loan is any mortgage that doesn’t meet the Consumer Financial Protection Bureau’s definition of a “Qualified Mortgage.” This doesn’t mean the loan is risky or subprime - it simply means the loan uses alternative methods to verify a borrower’s ability to repay.
The Qualified Mortgage (QM) rules were established under the Dodd-Frank Act after the 2008 financial crisis. They require strict income documentation - W-2s, pay stubs, tax returns - verified through traditional channels. Loans that meet QM standards can be sold to Fannie Mae and Freddie Mac, which keeps rates low. Loans that don’t meet QM standards (Non-QM) stay on the lender’s books or are sold to private investors.
The problem: millions of creditworthy Americans don’t fit neatly into QM guidelines. A business owner earning $300,000 per year may show only $80,000 on tax returns after legitimate deductions. A real estate investor with 15 cash-flowing rental properties may hit DTI limits after their 4th conventional mortgage. A retiree with $3 million in investments may have almost no taxable income. These borrowers need Non-QM solutions - and that’s exactly what we provide.
Non-QM is not subprime. Modern Non-QM loans are well-structured, fully regulated, and designed for creditworthy borrowers whose income simply doesn’t fit a traditional box.
Who Are Non-QM Loans For?
Non-QM loans serve a wide range of borrowers whose financial profiles don’t align with conventional lending guidelines.
Self-employed business owners are the largest Non-QM segment. If you own a business and take advantage of legitimate tax deductions - vehicle expenses, home office, depreciation, retirement contributions - your taxable income on paper may be a fraction of what you actually earn. Traditional lenders use that low taxable income to qualify you, which often means you can’t borrow enough. Non-QM solves this.
Real estate investors face a different problem: conventional lenders count each financed property against your personal DTI ratio, effectively capping most investors at 4-10 properties. DSCR loans eliminate this barrier entirely by qualifying based on the property’s rental income.
Foreign nationals and non-permanent residents often can’t provide U.S. tax returns, Social Security numbers, or traditional credit history. Non-QM programs designed for foreign nationals use passport-based identification, international credit references, and alternative income verification.
Retirees and high-net-worth individuals may have millions in assets but minimal taxable income - Social Security, a small pension, maybe some dividend income. Asset-based loans convert those assets into qualifying income without requiring traditional documentation.
Borrowers with recent credit events like bankruptcy, foreclosure, or short sale may not yet meet the waiting periods required by FHA, VA, or conventional programs. Some Non-QM lenders offer financing as soon as one day after a credit event with sufficient down payment and documentation.
Gig economy workers and 1099 contractors with variable, multi-source income streams can struggle to document consistent income through traditional channels. Bank statement loans capture their actual cash flow.
Types of Non-QM Loans We Offer
DSCR Loans (Debt Service Coverage Ratio)
DSCR loans qualify based entirely on the rental income an investment property generates - not your personal income. If the property’s rent covers the mortgage payment (a DSCR of 1.0 or higher), you can qualify regardless of your employment, tax returns, or personal DTI ratio. This is the go-to product for real estate investors building a portfolio, with no limit on the number of properties you can finance.
Bank Statement Loans
Bank statement loans use 12-24 months of personal or business bank deposits to verify income instead of tax returns. The lender analyzes your actual cash flow - what’s coming into your accounts - rather than the reduced figure on your tax return. This is the most popular Non-QM product for self-employed borrowers, available for primary residences, second homes, and investment properties.
No-Income / Asset-Based Loans
Asset-based loans qualify borrowers using liquid assets (savings, investments, retirement accounts) rather than income. The lender calculates a “synthetic income” by dividing your eligible assets over the loan term. Ideal for retirees, trust fund recipients, high-net-worth individuals between ventures, and anyone with substantial wealth but limited documentable income.
Non-QM vs. Conventional Loans
The fundamental difference is income verification. Conventional loans require W-2s, pay stubs, and tax returns verified under strict Fannie Mae/Freddie Mac guidelines. Non-QM loans accept bank statements, asset statements, rental income projections, or other alternative documentation.
| Feature | Non-QM | Conventional |
|---|---|---|
| Income Verification | Bank statements, assets, rental income | W-2s, pay stubs, tax returns |
| Min. Credit Score | 620-660 | 620 |
| Min. Down Payment | 10-25% | 3-5% |
| Interest Rates | 0.5-2% higher | Standard conforming rates |
| Max Loan Amount | $3M+ | $832,750 (conforming) |
| Property Types | Primary, 2nd home, investment | Primary, 2nd home, investment |
| Self-Employed Friendly | Yes - designed for it | Difficult with low tax returns |
| Investor Friendly | Yes - unlimited properties | Caps at 4-10 financed properties |
Choose conventional if you can document sufficient income through tax returns and W-2s - you’ll get a better rate. Choose Non-QM if your income is real but doesn’t fit traditional documentation, or if you’re an investor who needs to scale beyond conventional limits.
Non-QM Loan Requirements
Credit Score
Most Non-QM programs require a credit score of 620-660 minimum, depending on the specific product. DSCR loans may accept 620 with higher down payments. Bank statement loans typically start at 660. Asset-based loans usually require 680+. Higher scores get you better rates across all Non-QM products.
Down Payment
Expect 10-25% down payment depending on the product, property type, and credit score. Primary residences generally require less than investment properties. DSCR loans for investment properties typically need 15-25%.
Interest Rates
Non-QM rates are 0.5-2% above conventional rates because lenders can’t sell these loans to Fannie Mae or Freddie Mac and must hold more risk. Your exact rate depends on credit score, down payment, loan amount, and the specific Non-QM product. Despite the premium, for borrowers who can’t qualify conventionally, Non-QM provides access to financing that wouldn’t otherwise exist.
Loan Amounts
Non-QM programs often allow higher loan amounts than conventional - many go up to $2-3 million or more. This makes them a strong alternative to jumbo loans for borrowers who can’t document income traditionally.
Are Non-QM Loans Safe?
Yes. Modern Non-QM loans are fundamentally different from the “no-doc” and “stated income” products that contributed to the 2008 financial crisis. Today’s Non-QM lenders must:
- Verify ability to repay using alternative documentation methods (bank statements, assets, rental income)
- Maintain reasonable debt ratios - most programs cap DTI at 43-50%
- Require meaningful down payments - typically 10-25%, ensuring borrowers have skin in the game
- Follow all federal and state consumer protection regulations including Truth in Lending, RESPA, and fair lending laws
The Dodd-Frank Act didn’t ban Non-QM loans - it established safeguards that make them responsible. Non-QM borrowers today are typically well-qualified individuals whose financial situations simply don’t fit into a standardized checkbox.
How to Know Which Non-QM Product Is Right
Self-employed with strong bank deposits? Start with a bank statement loan. Your actual cash flow becomes your qualifying income.
Real estate investor? A DSCR loan is almost certainly your best option. The property qualifies itself.
High assets, low or no income? An asset-based loan converts your wealth into qualifying income.
Not sure which fits? Book a consultation and we’ll review your full financial picture. You can also take our quiz for a quick recommendation. In many cases, we can run numbers on multiple Non-QM products to find the best fit and rate. Not sure how much home you can afford? Use our affordability calculator.
Frequently Asked Questions
Are Non-QM loans the same as subprime loans?
No. Non-QM loans are for creditworthy borrowers who can’t document income through traditional means. They still require reasonable credit scores (typically 620+), significant down payments, and verified ability to repay. Subprime loans targeted borrowers with poor credit - Non-QM targets borrowers with non-traditional income.
Why would I choose a Non-QM loan over a conventional loan?
If you’re self-employed, an investor, or have non-traditional income, you may not qualify for conventional financing even though you can clearly afford the mortgage. Non-QM loans solve this by accepting alternative income verification methods like bank statements, rental income, or asset documentation.
Are Non-QM loan rates higher?
Yes, typically 0.5-2% higher than conventional rates. The premium reflects the additional risk lenders assume by not selling the loan to Fannie Mae or Freddie Mac. For borrowers who can’t qualify conventionally, the rate premium is the cost of accessing homeownership or investment opportunities.
Can I refinance a Non-QM loan later?
Yes. Many borrowers use Non-QM as a bridge - they purchase with a Non-QM product now, then refinance into a conventional loan later once their income documentation improves (e.g., after filing stronger tax returns or building enough equity).
Do Non-QM loans require a down payment?
Yes. Most Non-QM programs require 10-25% down depending on the product and property type. There are no zero-down Non-QM options.
Can I get a Non-QM loan for a primary residence?
Yes. While DSCR loans are limited to investment properties, bank statement loans and asset-based loans can be used for primary residences, second homes, and investment properties.
What documentation do I need for a Non-QM loan?
It depends on the product. DSCR loans need a lease agreement or rent schedule. Bank statement loans need 12-24 months of bank statements. Asset-based loans need documentation of liquid assets. All programs require standard items like identification, credit report authorization, and property information.
