Non-QM (Non-Qualified Mortgage) loans are mortgages that don't meet the CFPB's Qualified Mortgage (QM) standards — typically because they use alternative income verification or have non-traditional features. They're NOT "subprime" — they're designed for creditworthy borrowers who don't fit the rigid QM box. After the 2008 crisis, regulations made QM loans the standard. Non-QM emerged to serve borrowers who are creditworthy but have non-traditional income sources.
Use 12-24 months of bank statements to verify income instead of tax returns. Ideal for self-employed borrowers who write off significant expenses. Lenders analyze deposits and calculate a monthly income average. Typically 10-20% down. 620+ FICO.
Qualify based on property cash flow, not personal income. DSCR = rent ÷ mortgage payment (≥1.0-1.25 required). No tax returns, W-2s, or DTI calculation. 20-25% down. Primary for real estate investors.
Use your liquid assets to qualify instead of income. Lenders divide total assets by 60-84 months to calculate a "monthly income." For retirees and high-net-worth individuals with assets but low reported income. 700+ FICO typical.
Pay only interest for the first 5-10 years, then principal + interest. Lower initial payments. Good for investors and those with variable income (commission, bonus). Higher rates. Non-QM because they don't meet QM ability-to-repay standards.
| Feature | Non-QM | Conventional (QM) |
|---|---|---|
| Income Verification | Bank statements, assets, DSCR | Tax returns, W-2s, pay stubs |
| Rates | 1-3% above conventional | Market rates |
| Down Payment | 10-30% | 3-20% |
| DTI Cap | No cap (DSCR loans); flexible | 43-50% |
| Best For | Self-employed, investors, asset-rich | W-2 employees, standard income |
Non-QM loans typically have higher rates (1-3% above conventional), higher down payments (10-30%), and prepayment penalties. The tradeoff: you get approved when conventional lenders say no. Many Non-QM borrowers refinance into conventional loans after 1-2 years when their financial picture improves or when business tax returns catch up to actual income.