Non-QM Loans — Mortgage Solutions Beyond the Standard Box
Self-employed? Real estate investor? Non-traditional income? Non-QM loans use bank statements, rental income, or assets instead of W-2s and tax returns. I shop every non-QM lender to find the right program for your situation.
What Is a Non-QM Loan, and Why Would You Need One?
A non-QM loan is a mortgage that falls outside the Consumer Financial Protection Bureau's Qualified Mortgage standards. That sounds concerning until you understand what it actually means: the borrower's income, employment structure, or credit history does not fit the documentation requirements of conventional, FHA, or VA lending — even though they have every ability to repay the loan.
Non-QM is not subprime lending. It is alternative documentation lending for borrowers whose financial picture is real but does not translate neatly onto a W-2. In over 23 years of originating mortgages, some of the most creditworthy borrowers I have worked with needed non-QM programs — business owners with strong cash flow but heavy tax deductions, investors scaling rental portfolios, retirees with millions in assets but no employment income.
The non-QM market has matured significantly. These are not the Wild West loans of 2006. Modern non-QM programs include legitimate income verification, reasonable down payment requirements, and real underwriting standards. They simply use different documentation methods than conventional lending requires.
Non-QM Loan Programs I Offer
Non-QM is not a single product — it is a category of programs designed for different borrower situations. Here are the programs I work with most frequently.
Bank Statement Loans
Qualify using 12 to 24 months of personal or business bank statements instead of tax returns. The lender calculates your income based on average monthly deposits. Designed for self-employed borrowers, business owners, freelancers, and gig economy workers.
- Personal or business statements accepted
- 12 or 24 month options
- Primary, second home, or investment
- Loan amounts up to $3M+
DSCR Loans
Qualify based on the rental property's income, not yours. If the rent covers the mortgage payment at a ratio of 1.0 to 1.25, the loan can be approved — regardless of your personal income, tax returns, or employment status. No limit on the number of financed properties.
- No personal income verification
- Close in an LLC or entity name
- Short-term rentals (Airbnb) eligible
- Scale without DTI constraints
Asset Depletion
Qualify using liquid assets — retirement accounts, brokerage accounts, savings — instead of employment income. The lender divides your qualifying assets by the loan term to create a monthly income figure. Ideal for retirees, high-net-worth individuals, and anyone with substantial assets but limited documented income.
- Retirement and investment accounts count
- No employment required
- Strong option for early retirees
1099 Income Loans
For independent contractors and freelancers who receive 1099 income. Rather than using tax returns (which reflect deductions), the lender uses your 1099 forms from the past one to two years to document income. Simpler than a bank statement loan for borrowers with clean 1099 history.
- 1 or 2 years of 1099s
- No tax return analysis
- Straightforward documentation
Profit & Loss Loans
Qualify using a CPA-prepared profit and loss statement — sometimes as recent as the trailing 12 months. This works for business owners whose bank statement flow is complicated by transfers between accounts, but whose P&L clearly shows the business income.
- CPA-prepared P&L required
- Trailing 12 or 24 months
- Good for complex banking patterns
Recent Credit Event
Had a bankruptcy, foreclosure, or short sale in the recent past? Non-QM lenders may approve you sooner than conventional guidelines allow — sometimes as little as one day out of a credit event — if you can demonstrate strong current finances and a reasonable explanation.
- Shorter waiting periods
- Compensating factors considered
- Higher down payment usually required
Who Benefits Most from Non-QM Lending?
In my experience, non-QM borrowers fall into several distinct categories. Understanding which one fits your situation helps narrow down the right program quickly.
Self-Employed Business Owners
This is the largest group. You run a profitable business, but your tax returns show modest income because your accountant — correctly — maximizes deductions. A bank statement loan looks at your actual deposits rather than your taxable income. I have seen business owners who show $60,000 on their tax return but deposit $15,000 or more per month into their business account. The bank statement loan captures that real cash flow.
Real Estate Investors
DSCR loans changed the game for investors. Before DSCR, every rental property you added pushed your personal debt-to-income ratio higher, eventually making it impossible to qualify for more. With DSCR, each property qualifies on its own merit — the rent it generates versus the payment it requires. I work with investors who own 10, 20, even 30+ properties and continue to acquire more using DSCR financing. There is no cap on the number of DSCR loans you can have.
High-Net-Worth Retirees
You have $2 million in a brokerage account and a pension, but conventional guidelines say you do not have enough "income" to qualify. An asset depletion loan divides your liquid assets by the loan term — say 360 months — to create a qualifying income figure. Suddenly your $2 million translates to over $5,500 per month in attributed income, and you qualify comfortably without selling a single investment.
Foreign Nationals
Non-resident buyers purchasing U.S. property — whether for investment or personal use — can access non-QM programs designed specifically for foreign national borrowers. These typically require larger down payments (25% to 30%) and have limited documentation requirements compared to conventional programs.
Borrowers with Recent Credit Events
A bankruptcy, foreclosure, or short sale does not permanently disqualify you from homeownership. Conventional and FHA loans require waiting periods of two to seven years. Non-QM lenders may consider you much sooner — sometimes within 12 months — if your current financial profile is strong and you can provide a reasonable explanation for the credit event.
The common thread: Non-QM borrowers are not risky borrowers who cannot afford a mortgage. They are borrowers whose income or credit story does not fit the standard documentation template. The money is there — it just needs to be documented differently. That is exactly what non-QM lending solves.
Non-QM Requirements at a Glance
Requirements vary by program and lender, but here is a general overview of what to expect across the most common non-QM products.
| Factor | Bank Statement | DSCR (Investors) | Asset Depletion |
|---|---|---|---|
| Income Doc | 12–24 months bank statements | Property rental income only | Liquid asset accounts |
| Min. Credit Score | 660–700 (varies by lender) | 620–660 | 680–720 |
| Down Payment | 10%–20% (primary); 15%–25% (investment) | 20%–25% | 10%–25% |
| Max DTI | Up to 50% | N/A (property-based) | Up to 50% |
| Property Types | Primary, 2nd home, investment | Investment only (1-4 unit, condos) | Primary, 2nd home, investment |
| Loan Amounts | Up to $3M+ (some to $5M) | Up to $3M+ (some to $5M) | Up to $3M+ |
| Self-Employed History | Typically 2+ years | Not required | Not required |
| Prepayment Penalty | Sometimes (rate trade-off) | Common (2–5 year options) | Varies |
Honest note on pricing: Non-QM rates are higher than conventional conforming rates — typically by 0.5% to 2% or more, depending on the program, your credit score, and the down payment. This reflects the additional risk the lender takes with alternative documentation. But here is the math that matters: if a conventional loan says no and a non-QM loan says yes at a moderately higher rate, the non-QM loan gets you into the property. You can always refinance into a conventional loan later once your tax returns, credit, or documentation catch up to conventional standards.
Non-QM vs. Conventional: Understanding the Differences
Non-QM is not a replacement for conventional lending — it is a parallel path for borrowers who do not fit conventional guidelines. Here is how they compare.
| Factor | Conventional / QM | Non-QM |
|---|---|---|
| Income Documentation | W-2s, tax returns, pay stubs | Bank statements, 1099s, P&L, assets, rental income |
| Who Buys the Loan | Fannie Mae / Freddie Mac | Private investors, securitization market |
| Interest Rates | Lower (government-backed pricing) | Higher (risk-based pricing) |
| Down Payment | As low as 3% (low down payment options) | Typically 10%–25% |
| Max Loan Amount | $832,750 conforming / jumbo available | Up to $5M+ (some programs higher) |
| Prepayment Penalties | None | Sometimes (borrower chooses) |
| Best For | W-2 employees with standard documentation | Self-employed, investors, non-traditional income |
Real Non-QM Scenarios I See Every Week
These are the types of situations that walk through my door regularly. Each one requires a different non-QM solution — and matching the right program to the right borrower is where a broker's access to multiple lenders makes the biggest difference.
The Restaurant Owner Who Shows $70K on Taxes
She runs two locations, deposits $40,000 per month into her business account, but her tax return shows $70,000 in net income after deductions for equipment, food costs, and payroll. A conventional lender looks at the $70,000 and says the maximum purchase price is around $250,000. A 12-month bank statement loan sees the $40,000 monthly deposits, applies an expense factor, and qualifies her for a home closer to $550,000 — which matches what she can actually afford.
The Investor Scaling to Property Number Eight
He has seven rental properties, all cash-flowing. But his personal DTI is maxed under conventional guidelines because all seven mortgages count against him. A DSCR loan for property number eight ignores his personal income entirely — it only asks whether the new property's rent covers the new payment. The answer is yes, and he closes without a single W-2 or tax return in the file.
The Retired Couple with $1.5M in Investments
They sold their business two years ago, have $1.5 million in a brokerage account and $400,000 in an IRA, but no employment income. Conventional underwriting says they do not qualify. An asset depletion loan divides qualifying assets across a 30-year term, creating attributed income of over $4,000 per month. They purchase a $650,000 home in Scottsdale without touching their investment portfolio.
Broker advantage: Each of these scenarios requires a different lender. The restaurant owner's best option might be Lender A, which has the most favorable expense ratio calculation for food service businesses. The investor's best option might be Lender B, which allows a 1.0 DSCR ratio instead of requiring 1.25. The retirees' best option might be Lender C, which counts 100% of retirement assets instead of discounting them by 30%. As a broker, I have access to all of them. A bank offers one set of guidelines. I offer the entire non-QM market.
What to Watch For with Non-QM Loans
Non-QM loans solve real problems, but they come with trade-offs you should understand before committing.
Higher Interest Rates
Expect rates 0.5% to 2% above conventional pricing. On a $500,000 loan, that can mean $150 to $600 more per month in interest. The rate reflects the lender's risk — but as a broker, I can often find pricing at the lower end of that range by shopping multiple non-QM wholesale lenders.
Prepayment Penalties
Many non-QM programs — especially DSCR loans — offer the option of a prepayment penalty in exchange for a lower rate. Common structures are two-year, three-year, or five-year penalties. If you plan to hold the property long-term, accepting the penalty for a better rate makes financial sense. If you may sell or refinance soon, pay the slightly higher rate to keep your options open.
Larger Down Payment
Most non-QM programs require 10% to 25% down. You will not find 3% or 5% down payment options here. The larger equity position protects both you and the lender — and it is one of the reasons modern non-QM lending performs dramatically better than pre-2008 alternative lending did.
Not Every Lender Offers Every Program
The non-QM market is fragmented. One lender might excel at bank statement loans but not offer DSCR at all. Another might specialize in foreign national programs but have poor pricing on domestic non-QM. This is where working with a broker who maintains relationships across the entire non-QM lender landscape becomes essential.
Non-QM Loan Questions
A non-QM (non-qualified mortgage) loan is a home loan that does not meet one or more of the Consumer Financial Protection Bureau's Qualified Mortgage standards. This does not mean the loan is subprime or risky — it simply means the borrower's income, employment, or credit profile does not fit the standard documentation boxes. Non-QM loans use alternative methods to verify income and ability to repay, such as bank statements, asset accounts, rental property income, or 1099 forms instead of traditional W-2s and tax returns.
A bank statement loan allows self-employed borrowers to qualify using 12 to 24 months of personal or business bank statements instead of tax returns. The lender analyzes your deposit history to calculate average monthly income. This is designed for business owners, freelancers, independent contractors, and gig economy workers whose tax returns show lower income due to legitimate business deductions — even though their actual cash flow is strong enough to support a mortgage payment.
A DSCR (Debt Service Coverage Ratio) loan qualifies the borrower based on the rental income the property generates rather than the borrower's personal income. If the property's rental income covers the mortgage payment — typically at a ratio of 1.0 to 1.25 — the loan can be approved regardless of the borrower's W-2 income, tax returns, or employment status. DSCR loans are popular with investors who want to scale their portfolios without traditional debt-to-income limits getting in the way.
Credit score requirements vary by program and lender. Most non-QM programs require a minimum score of 620, though some lenders will go as low as 500 to 580 with significant compensating factors like a large down payment or substantial reserves. Bank statement loans typically require 660 to 700 or higher for the best terms. DSCR loans for investors generally start at 620 to 660. As a broker, I work with multiple non-QM lenders, each with different credit overlays, so I can match you to the program that fits your profile.
Non-QM down payments typically range from 10% to 25%, depending on the specific program, your credit score, and the property type. Bank statement loans for primary residences usually require 10% to 20% down. DSCR loans for investment properties typically require 20% to 25% down. Higher credit scores and larger down payments generally result in better pricing. Unlike conventional or FHA loans, non-QM programs do not offer 3% to 5% down payment options.
Yes, non-QM rates are typically higher than conventional conforming rates — often by 0.5% to 2% or more, depending on the program, credit score, down payment, and lender. This premium reflects the additional risk the lender takes by using alternative income documentation. However, the rate difference is often justified when the alternative is not qualifying at all. And as a broker, I shop multiple non-QM lenders to find the most competitive pricing for your specific scenario.
Some non-QM programs include prepayment penalties, particularly DSCR investor loans. A typical prepayment penalty might apply for the first two to five years of the loan. Choosing a prepayment penalty option often results in a lower interest rate, so there is a trade-off. If you think you might sell or refinance within a few years, we can structure the loan without a prepayment penalty — you will pay a slightly higher rate, but you maintain full flexibility. I always review this with clients before they commit.
Let Me Find the Right Non-QM Program for You
Every non-QM scenario is different. Send me your situation — I will tell you which programs fit, what the pricing looks like, and whether conventional lending might actually work with the right lender. No cost, no obligation.
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