Programs for borrowers who document income with pay stubs, W-2s or tax returns but do not fit conventional or jumbo rules. Here is when that happens, how the programs differ, and what to prepare.
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Fidelity Residential · NMLS #103098 · Equal Housing Lender
Most home loans follow the rules of Fannie Mae, Freddie Mac or a jumbo program. A borrower who documents income the standard way, with pay stubs and W-2s or with tax returns, but falls outside those rules has programs built for that. Lenders call them non-QM, because they sit outside the federal definition of a qualified mortgage.
The documents are the same ones a conventional loan asks for. What differs is the rule that did not fit: debts that are high compared with income, one year of income history instead of two, a recent bankruptcy or foreclosure, a loan larger than conventional limits allow, an interest-only or longer-term payment, or a home that conventional programs will not finance.
The lender still verifies your income, assets, credit and the home, and for a home you live in it must make a good-faith decision that you can repay the loan. These loans are not sold to Fannie Mae or Freddie Mac, so each program sets its own rules.
If your tax returns do not show your real income, see bank statement loans and the other documentation options instead.
Full documentation non-QM loans at a glance
Usually one rule, not the whole file. These are the common ones.
Conventional programs cap your monthly debts as a share of your income. Non-QM programs accept a higher share when there are compensating factors, such as savings after closing and enough income left over each month after the debts are paid.
One year of income history can be enough: one year of tax returns for the self-employed, or recent pay stubs and the latest W-2. A business under two years old can qualify when the owner has prior experience in the same line, and at one program after one year.
A past bankruptcy, foreclosure, short sale or modification does not rule you out. The wait is shorter than conventional rules, and after about two years many programs offer their full terms.
Mortgage after bankruptcy or foreclosureFinancing with as little as one tenth of the price down is available to buyers with strong credit on a main home, and on larger loans than conventional limits allow. A second home or a rental property can also be financed with a smaller down payment than many programs require.
How jumbo loans compareSome programs offer an interest-only period or a forty-year term to lower the early payments. The payment rises when the interest-only period ends, and the total interest paid over the life of the loan is higher. Plan on the higher payment, not the lower one.
How interest-only loans are underwrittenCondominiums that do not meet Fannie Mae or Freddie Mac rules, condo-hotels, two-to-four-unit homes and rural homes on acreage are eligible at many programs.
Portfolio loans for condos and co-opsA worked example, in words. Say you are salaried, your pay stubs and W-2s show your income clearly, and a conventional loan was turned down because your monthly debts are high compared with your income.
The same steps apply when the rule that did not fit is your income history, a credit event, the loan size, the payment type or the home itself.
Each program has its own rules. These are the ones they share, in words; a loan officer can tell you which program fits you.
The rule that stopped a conventional or jumbo loan: the ratio, the income history, a credit event, the loan size, the payment type or the home itself.
Pay stubs and W-2s, or personal and business tax returns if you are self-employed, plus statements for the down payment, closing costs and savings after closing.
A loan officer compares the programs that allow your situation and explains the down payment, reserves and payment type each one asks for.
The home is appraised, an underwriter reviews the file by hand against the program’s rules, and you review your closing disclosure and sign.
The same documents a conventional loan asks for. Most borrowers can start with these.
None of these is a requirement on its own. Together they make the file easier to place.
A qualified mortgage is one that meets a set of federal standards for how a loan is built and documented. A non-QM loan sits outside those standards, for example because the debts compared with income are higher or the payment is interest-only. The lender still verifies your income, assets and credit and must make a good-faith decision that you can repay the loan.
No. You document income the standard way, with pay stubs and W-2s or with tax returns, and your assets, credit and the home are verified. What changes is the rule that kept you out of a conventional or jumbo loan.
Higher debt-to-income ratios than conventional loans allow are accepted with compensating factors, such as reserves and enough income left over each month after your debts are paid. A loan officer can tell you which programs allow your ratio.
One year can be enough: one year of tax returns for the self-employed, or recent pay stubs and the latest W-2. A business under two years old can qualify when the owner has prior experience in the same line, and at one program after one year.
It does not rule you out. The wait is shorter than conventional rules, and after about two years many programs offer their full terms. How lenders treat a past credit event.
It depends on the program, your credit, the size of the loan and the kind of home. Financing with as little as one tenth of the price down is available to buyers with strong credit on a main home. Lower credit scores, larger loans, second homes and rental properties call for a larger down payment. Family gifts can help within program limits.
They lower the early payments, and they cost more over time. The payment rises when the interest-only period ends, and the total interest paid over the life of the loan is higher. Ask your loan officer to show you the later payment before you choose one.
Yes at many programs, including condominiums that do not meet Fannie Mae or Freddie Mac rules, condo-hotels, two-to-four-unit homes and rural homes on acreage. Each program has its own list, so tell your loan officer about the home early.
A mortgage for a borrower who documents income the standard way, with pay stubs and W-2s or with tax returns, but does not fit conventional or jumbo rules. Your income, assets, credit and the home are fully verified. What differs is the rule that did not fit, such as higher debts compared with income, one year of income history, a recent credit event, a larger loan, an interest-only payment or the home itself. These loans are not sold to Fannie Mae or Freddie Mac, so each program sets its own rules.
Full documentation means your income is shown with the standard papers: pay stubs and W-2s if you are employed, or personal and business tax returns if you are self-employed, for one or two years as the program asks. Alternative documentation loans use other papers instead, such as bank statements, 1099 forms, a profit and loss statement, a form your employer completes, or your assets. See alternative documentation loans.
Yes. Full documentation non-QM programs are for wage earners as well as the self-employed, when standard income documents show the income but one rule does not fit. If your pay stubs and W-2s already meet a conventional program’s rules, ask for a standard loan quote as well and compare the two for the same home.
Each non-QM program writes its own guidelines for the lenders and loan officers who use them, and they change from time to time. The requirements on this page sum up, in words, the rules the programs share. A loan officer compares the programs that allow your situation and tells you what the one that fits your file asks for.
No. A rate sheet is a price list for loan professionals, and it changes as the market moves. The price of a non-QM loan depends on the whole file: the program, your credit, how much you borrow compared with the home’s value, the size of the loan, the kind of home and whether you live in it, the payment type, any points you pay, and the market on the day you lock. So the rate is given for your own file, as a quote: a loan estimate with the rate, the APR and every cost in dollars. If your file could also fit a conventional or jumbo program, ask for that quote too and compare them for the same home.
Yes. A full documentation non-QM loan can buy a home or refinance the one you have, and your income is documented the same way. If you want to take cash out, ask your loan officer which programs allow it for your file.
Fidelity Residential is licensed in many states. The full, current list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999.
Get a quote, apply online, or talk it through with a licensed loan officer.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.
Reviewed by Robert Shamie, CEO, NMLS #241428 · Last reviewed:
Fidelity Residential (PFN Lending Group, Inc., NMLS #103098) is a direct mortgage lender licensed in 40 states and the District of Columbia, with 26 years in business.