Non-QM Loans: Flexible Mortgage Solutions for Non-Traditional Borrowers

Mortgages often fall under what’s known as Qualified Mortgages (QM), which are loans that meet strict guidelines set by the Consumer Financial Protection Bureau (CFPB). But not every borrower checks all the boxes in this category. For those with unique income situations and financial backgrounds, non-QM loans — or non-qualified mortgages — can provide a more flexible alternative.

This guide explains what non-QM loans are, how they work, who qualifies, the specific types of mortgage programs available in this category, and how they compare to traditional mortgages.

Get Started

Our Reputation Speaks For Itself

Plus Many More, 400+ More...

What Is a Non-QM Home Loan?

A non-QM loan is a mortgage that does not meet the guidelines of a qualified mortgage, but is still a safe and legal lending option. These loans are designed for borrowers who may be unable to meet conventional mortgage underwriting guidelines but are still creditworthy and have the financial means to cover mortgage payments.

Rather than requiring conventional documentation like W-2s or tax returns, non-QM loans allow financially qualified borrowers to access homeownership opportunities using other financial metrics.

Find the Best Mortgage Deals for You

Make your dream home a reality with the right mortgage.

View Rates

TermConforming 30 year fixed

Rate5.875%

APR6.074%

98004 | $800,000 | Credit Score 800+ | 25 Down

TermConforming 15 year fixed

Rate4.875%

APR5.277%

98004 | $800,000 | Credit Score 800+ | 25 Down

View Rates

Who Are Non-QM Loans Best Suited For?

Non-QM loans serve borrowers with non-traditional financial profiles, despite being financially healthy. Examples of suitable candidates for non-QM loans include the following:

Self-Employed Individuals. Those with fluctuating or seasonal income; tax write-offs & deductions reduce reported income.
Investors. Those who rely on rental income, asset-based income, or cash flow from investments.
High Net-Worth Individuals. Those who prefer to qualify based on assets.
Retirees. Those with substantial assets but are on a fixed income.
Borrowers Seeking Unique Loan Features. Features like interest-only payments or longer loan terms may be allowed with non-QM loans, unlike traditional mortgages.

Get Started

Key Features of Non-QM Loans

Non-QM investor loans offer customized solutions for borrowers with non-traditional financial profiles. Here’s what sets them apart:

Flexible Income Verification

Rather than relying solely on W-2s or tax returns, non-QM loans allow alternative documentation, including:

Personal or business bank statements
Liquid assets (savings or investments)
Actual and projected rental income
Net Operating Income (NOI) of investment properties

Higher Debt-to-Income (DTI) Ratios

Unlike qualified mortgages that generally cap DTI ratios at 43%, non-QM loans may permit DTI ratios of 50% or more. This is especially beneficial for borrowers with higher debt loads tied to their investments and other financial endeavors.

Credit Scores

Lenders will evaluate the borrower’s credit profile to verify their creditworthiness. Most programs require a minimum credit score of 620, though stronger scores may improve loan terms and rates.

Higher Interest Rates

Due to the higher risk nature of non-QM lending, these loans typically come with higher interest rates compared to conventional loans.

Higher Down Payment Requirements

Non-QM investor loans often require down payments ranging from 15% to 30% or more. This ensures sufficient equity in the property and reduces lender risk.

Types of Non-QM Loan Programs

Non-QM loans can be considered a general category for loans that fall outside traditional QM guidelines. Within this category are several specific non-QM loan types, including the following:

Bank Statement Loans

– Designed for self-employed borrowers without traditional income documentation

– Use 12–24 months of personal or business bank statements

– Income calculated based on average deposits

Asset-Based Loans

– Designed for high net-worth individuals with valuable assets

– Assets serve as security for the loan

– Use bank accounts, money market accounts, U.S. Treasuries, stocks, bonds, mutual funds, & retirement accounts

DSCR Loans

– Ideal for investors

– Qualify based on a property’s rental income

– Minimum DSCR of 1.0 – 1.25 required to qualify

1099-Only Loans

– Suitable for self-employed individuals who earn income reported on IRS Form 1099

– Popular among freelancers, gig workers, independent contractors, & commission-based professionals

Profit & Loss (P&L) Only Loans

– Suitable for self-employed professionals who earn a sufficient income that’s not accurately reflected in their tax returns

– Lenders evaluate P&L statements, business cash flow, bank statements, DTI ratio, & credit score

Get Started

Pros and Cons of Non-QM Loans

Non-QM loans offer a unique set of advantages for borrowers with unconventional financial profiles, making homeownership possible even when traditional lending criteria fall short:

Flexible Qualification: Non-traditional earners with significant financial backing may find non-QM loans easier to qualify for in terms of income and credit verification.
Creative Financing Options: Non-QM loans can be tailored to suit the unique needs of financially qualified borrowers.
LLC Borrowing: Home buyers can protect their personal assets by purchasing a property under an LLC, trust, or corporation.

While non-QM loans offer flexibility, they also come with certain limitations that borrowers should carefully consider before opting for these non-traditional mortgage solutions:

Higher Interest Rates: Lenders tend to charge higher interest rates on non-QM loans due to the increased risk.
Larger Down Payments: Lenders often require at least 15% or much more to offset risk.
Limited Availability: Not all lenders offer non-QM loan programs.

Non-QM Loans vs. Traditional Mortgages

There are key differences between non-QM loans and traditional mortgages, particularly when it comes to how borrowers are evaluated and the flexibility offered in income, credit, and loan structure:

Feature

Non-QM Loans

Conventional Mortgages

Best For

Self-employed individuals, investors, & high net-worth borrowers with no traditional income documentation

Traditionally employed borrowers with strong income & credit scores

Income Verification

– Bank statements

– Assets

– DSCR calculations

-W-2s

-Pay stubs

-Tax returns

Debt-to-Income (DTI) Ratio

Maximum 45% — 50%

Maximum 43%

Down Payment

Typically 15% – 30%+

As little as 3%

Interest Rates

Higher due to lender risk

Lower for borrowers with good credit

Mortgage Insurance

Not required

Required if down payment is less than 20%

Get Started

FAQs

Are non-QM loans a type of subprime mortgage?

No, non-QM loans are not subprime loans. While non-QM loans may not have to adhere to the guidelines set by the CFPB, they still follow Ability-to-Repay (ATR) rules, which means lenders are required to verify the borrower’s financial stability.

Do non-QM loans require mortgage insurance?

Usually no, even with down payments less than 20%.

How much down payment do I need for a non-QM loan?

Typical minimum down payment requirements range from 15% to 30% or more, depending on your credit score and the specific loan type.

Can I refinance a non-QM loan?

Yes, many lenders offer non-QM refinance programs, including interest-only and cash-out refinance options.

Can I qualify with a high debt-to-income ratio?

Yes, lenders often allow DTI ratios up to 50% or more, compared to the 43% limit on qualified mortgages.

Can I use a non-QM loan to buy an investment property?

Yes, many non-QM loans, like DSCR loans, are designed specifically for real estate investors to purchase rental properties.

Can I use a non-QM loan to buy a primary residence?

Yes, non-QM loans can be used to purchase primary homes, second homes, and investment properties.

Where can I find a non-QM lender?

Look for a mortgage lender who specializes in non-QM loans and has experience with alternative documentation.

States we lend in

Our loan officers are ready and waiting to help you apply for your home loan.

Washington Oregon

Final Thoughts

Non-QM loans fill an important gap in the mortgage landscape, catering to borrowers who fall outside conventional lending criteria. Whether you’re self-employed, an investor, or have unique income sources, a non-QM loan can provide you with access to homeownership when conventional mortgages may be out of reach.

Need Financing?

If you’re looking to buy a home in the Pacific Northwest region — including WA, OR, ID, CO, and CA — but lack the traditional income documentation required for conventional mortgages, we can help. At Sammamish Mortgage, we offer various non-QM loan options for those without standard employment. Visit our website to get an instant rate quote, or get in touch with us today to have your mortgage questions answered!

Get Started

Connect with a Mortgage Advisor Today!

Whether you’re buying a home or ready to refinance, our professionals can help.

425-401-8787 Get Started

Non-QM Loans: Flexible Mortgage Solutions for Non-Traditional Borrowers

Our Reputation Speaks For Itself

What Is a Non-QM Home Loan?

Find the Best Mortgage Deals for You

Who Are Non-QM Loans Best Suited For?

Key Features of Non-QM Loans