Non-QM Loans
Non-QM loans are mortgages that do not follow the federal “Qualified Mortgage” documentation rules. They let lenders qualify you using bank statements, rental income, assets or other methods instead of tax returns and pay stubs. They can open the door for self-employed borrowers, investors and people recovering from credit events, usually at a higher cost.
Key Takeaways
- Non-QM stands for non-qualified mortgage. The loans are legal and regulated; they simply use different income documentation.
- Common types include bank-statement loans, DSCR investor loans, asset-depletion, 1099 income, interest-only and ITIN loans.
- Expect higher rates and larger down payments, often 10% to 25% or more, than conventional.
- If you can qualify for a conventional loan, it usually costs less. Non-QM is for when standard rules do not fit.
Who needs a non-QM loan?
- Self-employed borrowers whose tax returns show low income after write-offs.
- Real estate investors who want to qualify on the property’s rent instead of personal income.
- Freelancers and 1099 earners with variable income.
- Borrowers with recent credit events, such as a bankruptcy, foreclosure or short sale that is too recent for conventional or FHA.
- Retirees or asset-rich borrowers with limited monthly income.
- Foreign nationals and ITIN borrowers without a Social Security number.
What are the main types of non-QM loans?
| Type | How you qualify |
|---|---|
| Bank statement loan | 12 or 24 months of deposits show your income |
| DSCR loan | Rental income compared with the property payment; see what is DSCR |
| Asset depletion | Savings and investments are converted into qualifying income |
| 1099 income loan | 1099 forms and bank records document freelance income |
| P&L loan | A profit and loss statement supports business income |
| Interest-only loan | Lower initial payments for an interest-only period |
| ITIN loan | Individual Taxpayer ID Number in place of a Social Security number |
What are the honest tradeoffs?
Non-QM is a tool, not a shortcut. Compared with conventional financing:
- Higher rates and sometimes higher fees.
- Larger down payments, often 10% to 25% or more.
- Prepayment penalties can apply on some investor and business-purpose products, such as DSCR loans, but generally not on owner-occupied consumer loans. See prepayment penalties.
- More flexibility in income, credit history and property use.
- Reserves may be required.
Many borrowers use non-QM as a bridge and refinance to conventional later when income or credit improves. See refinancing a non-QM loan. For a head-to-head view, read non-QM vs. conventional and the pros and cons.
How do I get started?
- Who qualifies and what credit score you need.
- Down payment requirements.
- How to get pre-approved.
- After a bankruptcy, foreclosure or short sale.
Check whether conventional fits first, since it often costs less. Compare all loan types in Types of Home Loans. For large loan amounts, see jumbo loans. The full library is at non-QM loans.
At Lendia, we match income type to the right program
At Lendia, we compare options from multiple lenders and explain the tradeoffs plainly. Contact us or get a rate quote now.
Frequently Asked Questions
Is a non-QM loan safe?
Yes, non-QM loans are regulated mortgages. Lenders must still verify your ability to repay, using alternative documentation.
Are non-QM loans only for bad credit?
No. Many non-QM borrowers have strong credit but non-traditional income.
How much down payment is needed?
Often 10% to 25% or more, depending on the program.
Can I buy an investment property without personal income?
A DSCR loan qualifies you on the property’s rental income relative to its payment.
Can I refinance out of non-QM later?
Often yes, once your documentation or credit fits standard rules. Rates and terms depend on your situation; approval requires qualification.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.