Bank statement loans
Income from bank deposits instead of tax returns, with a calculator.
Non-QM · alternative documentation · investor loans
Non-QM loans: home loans outside the standard rules
A non-QM (non-qualified mortgage) loan is a home loan made outside the federal QM standards most mortgages follow. It can show income another way, such as bank statements, 1099 forms or savings, or fit a borrower or home that conventional rules do not. Income or assets, credit and the home are still verified.
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- NMLS #103098
- Equal Housing Lender
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Fidelity Residential · NMLS #103098 · Equal Housing Lender
The basics
What a non-QM loan is
Most home loans follow Fannie Mae, Freddie Mac, government or jumbo rules. Non-QM loans are not sold to Fannie Mae or Freddie Mac, so each program sets its own rules.
They serve two groups: people who show income another way, such as bank statements, 1099 forms or savings, and people with standard pay stubs or tax returns who miss one conventional rule.
It is not a no-document loan. Income or assets, credit and the home are verified, and for a home you live in the lender must make a good-faith decision that you can repay.
Who it suits
- Self-employed owners whose tax returns understate what the business earns
- Contractors and commission earners paid on 1099 forms
- Retirees and people living on savings and investments
- Borrowers turned down on one rule despite standard documents
- Real estate investors, on business-purpose rental loans
Where the line falls
QM and non-QM: what puts a loan outside the standards
A qualified mortgage, or QM, is a loan that meets a set of federal standards for how it is built and documented. A non-QM loan sits outside those standards. A file usually goes non-QM over one rule, not the whole file:
- How income is shown: bank statements, 1099 forms, a profit and loss statement, an employer’s written verification or your assets, instead of tax returns.
- Debts that are high compared with income, offset by savings and income left over each month.
- A short income history, or a young business whose owner has past experience in the same line of work.
- A past bankruptcy, foreclosure, short sale or modification too recent for conventional rules.
- The loan or the payment: a loan larger than conventional limits allow, or an interest-only payment or a longer-than-usual term.
- The home: a condominium that does not meet Fannie Mae or Freddie Mac rules, a condo-hotel, a small multi-unit home or a rural home on acreage.
Non-QM or alternative documentation? Alternative documentation is the part of non-QM about how you show income: bank statements, 1099 forms, a profit and loss statement, an employer’s form or your assets. Non-QM is wider: it also covers borrowers with standard documents who miss one other rule. To compare the income options side by side, see alternative documentation loans.
Home loans
Non-QM programs for your home
For a home you live in, and in many programs a second home or a rental too.
1099 loans
Your 1099 forms instead of tax returns, for independent contractors.
Profit and loss loans
A profit and loss statement from an independent tax professional, in place of tax returns.
Employer verification (WVOE)
Your employer confirms your job and pay in writing, in place of pay stubs and tax returns.
Asset-based loans
Verified savings, investments and retirement accounts count in place of, or as well as, a paycheck.
Full documentation non-QM
Standard income documents, but one conventional rule missed.
After bankruptcy or foreclosure
A past credit event does not rule out a home loan.
ITIN mortgages
For people who file US taxes with an ITIN instead of a Social Security number.
Alternative documentation
Every way to document income, compared side by side.
Investors
Rental and investor loans
Investor loans are often grouped with non-QM. They are business-purpose loans, made outside the consumer mortgage rules: nobody on the loan lives in the property, and the loan is read on the property’s rent or value.
DSCR loans
A rental financed on its own rent, with a calculator. For business purposes only.
Short-term rental loans
A nightly or weekly rental, financed on its booking income. For business purposes only.
Portfolio rental loans
Several rentals under one loan, on their combined rent. For business purposes only.
Small apartment buildings
Small residential and mixed-use buildings, based on the building’s rent. A business-purpose loan.
Fix and flip loans
Short-term financing to buy and renovate, with funds released in draws. For business purposes only.
Hard money loansForeign national loans
A rental financed on its rent, for buyers living abroad. For business purposes only.
Side by side
QM loan, non-QM loan or investor loan?
Three kinds of loan, and what sets each apart.
| Question | QM loan | Non-QM home loan | Investor loan |
|---|---|---|---|
| Whose rules | The federal QM standards and the Fannie Mae, Freddie Mac, government or jumbo program’s rules | Each program’s own rules, outside the QM standards | Each program’s own rules for business-purpose loans |
| How income is shown | Pay stubs, W-2s and tax returns | Bank statements, 1099 forms, a profit and loss statement, an employer’s form or assets; or standard documents when one other rule is missed | The property’s rent or the deal, rather than your personal income |
| Ability to repay | The lender decides you can repay | The lender still makes a good-faith decision that you can repay | Read on the property; your credit and the property are still checked |
| The property | A home you live in, a second home or a rental | A home you live in, and in many programs a second home or a rental | Investment property only; nobody on the loan lives in it |
| What to weigh | Worth comparing first when your file fits | Terms differ by program: ask for them in writing and compare with a conventional quote where you can get one | Terms depend on the property, the program and your experience |
Business purpose investor loans are for investment property only. Nobody on the loan may live in the property.
Step by step
How a non-QM loan works
Talk it through
How you earn, or which rule stopped a conventional loan.
Match a program
A loan officer matches a program to your file.
Apply and document
The papers for your option, plus statements for the down payment and closing costs.
Appraisal, underwriting, closing
The home is appraised, the file is reviewed, and you close.
What to prepare
- The documents for your option: bank statements, 1099 forms, a profit and loss statement, your employer’s form, asset statements, or pay stubs, W-2s and tax returns
- Statements for the down payment, closing costs and savings after closing
- A short letter on any past credit event, with the papers that show it was resolved
- Statements for any other properties you own
- Photo identification for each borrower
What to weigh
- Each program sets its own rules, so ask for the terms in writing and compare them with a conventional quote where you can get one.
- On a full documentation non-QM loan, the down payment grows for a second home or a rental, for larger loans and for lower credit scores.
- The money for savings after closing is checked on every option, as on any mortgage.
- An interest-only payment or a longer term lowers the early payments but costs more over the life of the loan; plan on the later, higher payment.
Questions
Questions about non-QM loans
What does non-QM mean?
A qualified mortgage 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 income is shown with bank statements, the debts compared with income are higher, or the payment is interest-only. The lender still verifies your income or assets and your credit, and must make a good-faith decision that you can repay.
Is a non-QM loan a no-document loan?
No. The documents differ, but income or assets, credit and the home are all verified.
Is a non-QM loan the same as a subprime loan?
No. Non-QM describes how a loan is documented or built, not the borrower. Most files go non-QM because of how income is shown or because of one rule, and income or assets, credit and the home are still verified.
Does a non-QM lender still check that I can repay?
Yes, on a home you live in: the lender must make a good-faith decision that you can repay. Business-purpose rental loans work differently: a DSCR loan, for example, is read on the property’s rent rather than your personal income.
Is a DSCR loan a non-QM loan?
It is often grouped with them. Strictly, a DSCR loan is a business-purpose loan on a rental, financed on the property’s own rent and made outside the consumer mortgage rules. Nobody on the loan may live in the property.
My debts are high compared with my income. Is there a program for me?
Higher debts compared with income than conventional loans allow are accepted at some programs, with compensating factors such as savings after closing and enough income left over each month after your debts are paid. A loan officer can tell you which programs allow your ratio.
Can I get a non-QM loan after a bankruptcy or foreclosure?
A past bankruptcy, foreclosure, short sale or modification does not rule you out, and the wait is shorter than under conventional rules. See how lenders treat a past credit event.
How much do I need for a down payment?
It depends on the program, your credit, the size of the loan and the kind of home. Lower credit scores, larger loans, second homes and rental properties call for a larger down payment, and family gifts can help within program limits. A loan officer can lay out the options for your file.
Can a co-borrower with a regular paycheck apply with me?
Often, yes. Many programs let a co-borrower’s wages, documented the usual way, be added to your bank statement or 1099 income. A loan officer can check how your program combines them.
Could a standard loan work for me instead?
Sometimes. If your file fits a conventional or government loan, ask for that quote too and compare them. Non-QM programs are there for the files those rules do not fit.
Sources: Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.43: minimum standards for transactions secured by a dwelling, including the ability-to-repay rule (opens in a new tab); Consumer Financial Protection Bureau, What is a Qualified Mortgage? (opens in a new tab); Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.3: exempt transactions, including credit for business purposes (opens in a new tab). Facts are stated in our own words.
Not sure which program fits?
Get a quote, or talk your file through with a licensed loan officer.
Business purpose investor loans are for investment property only.
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.