Non-QM Loan

Why non-QM loans exist

Since 2014, most lenders have designed their loans to meet federal Qualified Mortgage (QM) standards, and those programs rely heavily on tax returns and W-2s. That works for salaried employees but can understate income for business owners who take legitimate deductions, contractors with varying pay and investors whose wealth is in assets.

Non-QM lenders still must confirm your ability to repay. They simply accept other evidence, such as deposits, profit and loss statements or assets.

Bank statement loans

The lender reviews 12 or 24 months of statements and averages eligible deposits to calculate monthly income.

• Personal statements: most deposits count, excluding transfers and one-time items
• Business statements: an expense factor, often 30% to 50%, is applied, or a CPA can document your actual expense ratio
• Large or unusual deposits may need a short explanation

This is the most popular non-QM option for self-employed borrowers.

P&L and 1099 loans

A profit and loss statement prepared or reviewed by a CPA, enrolled agent or licensed tax preparer can document income, sometimes with a few months of bank statements to support it.

Independent contractors may qualify with one or two years of 1099 forms, with a standard expense factor applied instead of relying on tax return write-offs.

Asset depletion and asset-based loans

Borrowers with substantial savings, investments or retirement accounts may qualify without employment income. The lender divides eligible assets by a set number of months to create a qualifying income figure. Retirement and stock accounts may be counted at a percentage of their value.

After bankruptcy, foreclosure or short sale

Conventional loans often require waiting periods of several years after a major credit event. Some non-QM programs allow financing as soon as one day to two years afterward, with pricing and down payment adjusted for the timing.

Comparing non-QM offers

• Rate and points
• Down payment and maximum loan-to-value
• Reserve requirement in months of payments
• Prepayment penalty terms on investment properties
• How income is calculated, since two lenders can reach different numbers from the same statements

We shop these details for you and show the full cost side by side.

Pricing and the path to conventional

Non-QM rates are typically higher than conventional rates because the loans are not sold to Fannie Mae or Freddie Mac. Stronger credit, a larger down payment and more reserves improve pricing. Many borrowers use non-QM to buy now, then refinance into conventional financing once their tax returns qualify.