Non-QM Loans

Non-QM Loans

Non-QM Loans – What are They and How do they Work?

You’ll hear many different terms when shopping for a mortgage, including qualified and non- qualified mortgages. Non-QM loans offer an option for people who wouldn’t otherwise qualify
for a mortgage.
Who needs a non-QM loan, and how do they work? Keep reading to learn everything you must know about non-QM loans.

What are Non-QM Loans?

Non-QM loans don’t pass the Consumer Financial Protection Bureau’s guidelines. The most important requirement is that the lender can verify beyond a reasonable doubt that the borrower can repay the loan.
To prove the ability to repay, borrowers must provide paystubs, W-2s, and tax returns. But some borrowers can’t prove their income with tax returns because they have irregular income or show a loss.
Non-QM loans accept alternative forms of income verification to prove borrowers can afford the loan. The difference is that there isn’t a government guarantee. Instead, lenders keep the loans themselves; this allows them to set the requirements.

Who Needs Non-QM Loans?

Non-QM loans are for borrowers who don’t meet the traditional loan guidelines. However, you must still prove you can afford the loan and have a debt-to-income ratio below what the loan program requires. The difference is you can prove your income in alternate ways. Many people benefit from non-QM loans, but here are the most common.

Self-Employed Borrowers

Self-employed borrowers are the most common people to use non-QM loans. Rather than providing income taxes that might not reflect your actual income, they can provide 12 – 24 months of bank statements.
Self-employed borrowers benefit from non-QM loans because many take deductions and credits that lower your adjusted gross income. If your AGI is a loss or not high enough to qualify for a mortgage, you can’t get traditional financing, but non-QM loans may be an option.

Financially Independent Borrowers

If you’ve reached financial independence but want to leverage your investment in a home, you’ll need a non-QM loan. If you don’t have regular employment and paychecks to prove your employment, you won’t qualify for a qualified mortgage.

Borrowers in High Professions

If your income will increase drastically in the upcoming years because you’re in a high-paying profession, but you found your dream home now, you may benefit from a non-QM loan. However, you must make enough income to meet the debt-to-income ratio requirement and be able to afford the principal and interest payments immediately.
Some doctors and lawyers, for example, just getting started prefer an interest-only mortgage so they don’t have to worry about a large mortgage payment until their practice is established.

Real Estate Investors

Many real estate investors can’t get traditional financing because they’ve reached the maximum of 10 homes in their portfolio. Non-QM loans don’t have a maximum, giving real estate investors more options. Some lenders even offer debt service coverage ratio loans which allow the rent you receive for the property to be the income.

How do you Qualify?

Qualifying for a non-QM loan varies by lender. Most non-QM loans have a more flexible credit score, debt-to-income ratio, and underwriting guidelines.
Because lenders can set the guidelines for each loan, they vary by lender and loan program. Therefore, the reason you need a non-QM will determine which loan is right for you.
For example, do you need one because you’re self-employed and need to use bank statements to prove your income, or do you need an interest-only payment, for now, to afford the loan until you make more money?

What are the Pros and Cons of Non-QM Loans?

All loans have pros and cons. Understanding the good and bad of non-QM loans can help you determine if it’s a good option.


  • You can use alternative documentation to qualify for the loan
  • The credit score requirements are more flexible
  • They are more flexible for unique qualifying circumstances


  • Most lenders require a high down payment
  • The interest rate and closing costs may be higher than a traditional loan
  • They can be harder to find

Final Thoughts

Non-QM loans help borrowers who don’t meet standard guidelines secure a loan. They offer an option for those who can afford a mortgage but don’t have the traditional paperwork to qualify for financing.


Company NMLS: 1215609
Individual NMLS: 896707
Company CA DRE# 01961874
Individual CA DRE# 01947545
Hawaii - MLO Company License - HI-1215609: DBA - Ohana Home Loans
Washington -License/Registration #MB-1215609

Equal Housing Lender

Contact Us

Fund USA Corp
2183 Fairview Rd.
Suite 217-D
Costa Mesa, CA 92627
(888) 511-1950

Hawaii Branch
45-20 Holowai St
Kaneohe, HI 96744

Office Hours
8 AM - 6 PM Mon-Fri
10 AM - 5 PM Saturday
9 AM - 4 PM Sunday