Non-QM loans are mortgage products that do not meet the strict Qualified Mortgage guidelines set by the CFPB. They offer more flexible qualification criteria.
These loans serve borrowers who don't fit conventional boxes: self-employed with heavy deductions, real estate investors, foreign nationals, or those with recent credit events.
Non-QM loans typically have higher interest rates, larger down payment requirements, and less favorable terms than conventional loans.
What Makes It Non-QM
Non-QM loans do not have the same safe harbor protections as QM loans. They often have higher DTI limits, use alternative income documentation, and may have interest-only features.
Who It Serves
Non-QM loans serve: self-employed borrowers whose tax returns show low income due to deductions, investors with rental properties, foreign nationals without US credit history, and borrowers with recent bankruptcy.
Types of Non-QM Loans
Common Non-QM types: Bank statement loans (use bank deposits as income verification), asset depletion loans (use assets to create qualifying income), DSCR loans (use rental income), and interest-only loans.
Rates and Terms
Non-QM rates are typically 1-3% higher than conventional rates. Down payment requirements are often 20-30%. Some require 6-12 months of mortgage reserves.
When to Consider
Consider Non-QM when: your tax deductions make conventional qualification impossible, you are a foreign national with strong assets, you need an investor loan based on rental income, or you have recent credit events.
Alternatives to Non-QM
Before choosing Non-QM, exhaust all conventional options: FHA loans, bank statement loans, and portfolio lenders who hold their own loans.