Non-QM loan vs conventional loan
A conventional loan follows Fannie Mae or Freddie Mac rules and is documented with pay stubs, W-2 forms or tax returns. A non-QM loan is made outside the federal QM standards, so 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 verified on both. Fidelity Residential, a licensed direct mortgage lender, offers both.
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- Direct, licensed mortgage lender
- NMLS #103098
- Equal Housing Lender
Compare both for your home
Ask for both and compare the two loan estimates side by side for the same home.
Fidelity Residential · NMLS #103098 · Equal Housing Lender
Whose rules the loan follows
Most home loans are conventional or government loans that follow a set of standard rules. A conventional loan follows Fannie Mae or Freddie Mac rules: your income is shown with pay stubs, W-2 forms or tax returns, and your debts, credit, savings and the home have to fit those rules.
A non-QM (non-qualified mortgage) loan is made outside the federal QM standards. It is not sold to Fannie Mae or Freddie Mac, so each program sets its own rules. It serves 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. The terms usually differ from a conventional loan, including what the loan costs and how much you put down, because each program sets its own. If your file could fit both, ask for both and compare them for the same home.
At a glance
- Conventional loan: follows Fannie Mae or Freddie Mac rules; income from pay stubs, W-2 forms or tax returns; often about three to four weeks once the file is complete
- Non-QM loan: made outside the federal QM standards; each program sets its own rules; income from bank statements, 1099 forms, a profit and loss statement, savings or standard documents when one conventional rule does not fit
- Both: income or assets, credit and the home are verified; a home you live in, and in many programs a second home or a rental
Non-QM loan and conventional loan compared
A file usually goes non-QM over one rule, not the whole file. These are the rules that decide it.
| Question | Conventional loan | Non-QM loan |
|---|---|---|
| Whose rules | Fannie Mae or Freddie Mac rules, within the federal QM standards | Each program’s own rules, outside the federal QM standards |
| How income is shown | Pay stubs and W-2 forms, or tax returns | Bank statements, 1099 forms, a profit and loss statement, an employer’s written verification, savings and investments, or standard documents |
| Debts compared with income | Must fit the standard limits | Higher debts can be offset by savings and the income left over each month |
| A past credit event | A bankruptcy, foreclosure, short sale or modification must be far enough in the past | One too recent for conventional rules does not rule out a home loan |
| Loan size | Up to the conforming limit set each year for the county and the number of units | Larger loans than conventional limits allow, in some programs |
| The home | A home, condominium or small multi-unit home that meets Fannie Mae or Freddie Mac rules | Also a condominium that does not meet those rules, a condo-hotel or a rural home on acreage |
| Verified | Income, debts, credit, savings and the appraisal | Income or assets, credit and the home; for a home you live in, a good-faith decision that you can repay |
| How long it takes | Often about three to four weeks once the file is complete | A bank statement loan often takes about three to four weeks; a loan officer can tell you the timing for the others |
The program pages show the terms in figures, dated: non-QM loans, bank statement loans and full documentation non-QM.
When a conventional loan fits better
When your documents and your file fit the standard rules.
- Your tax returns show your income. Pay stubs, W-2 forms or tax returns tell the whole story.
- Your debts leave room. Your debts compared with your income fit the standard limits.
- No recent credit event. Any bankruptcy, foreclosure or short sale is far enough in the past for the standard rules.
- The home meets the rules. The home or condominium fits Fannie Mae or Freddie Mac rules.
When a non-QM loan fits better
When your income is real but shown another way, or one rule does not fit.
- You are self-employed. Your tax returns understate what the business earns, so bank statements or a profit and loss statement show it better.
- You are paid on 1099 forms. Contractors and commission earners can use their 1099 forms instead of tax returns.
- You live on savings. Retirees and people living on savings and investments can have those assets count.
- You missed one rule. Standard documents, but a recent credit event, a larger loan or a home the standard rules do not accept.
How to choose between them
Start with your documents
If pay stubs, W-2 forms or tax returns show your income, start with conventional. If they understate it, look at the other ways to show income.
Find the one rule
If you were turned down, ask which rule it was: income, debts, a credit event, the loan size or the home. That points to the right program.
Price both if you can
When your file could fit either loan, ask for both and compare the two loan estimates side by side for the same home.
Get your terms in writing
Compare the full terms on each loan estimate before you commit, not just the monthly figure.
Questions about non-QM and conventional loans
What is the difference between a non-QM loan and a conventional loan?
Whose rules it follows. A conventional loan follows Fannie Mae or Freddie Mac rules and is documented with pay stubs, W-2 forms or tax returns. A non-QM loan is made outside the federal QM standards, so each program sets its own rules and income can be shown another way, such as bank statements, 1099 forms or savings.
Is a non-QM loan a no-document loan?
No. 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. What changes is how the income is shown.
Is non-QM the same as 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.
Does a non-QM loan cost more than a conventional loan?
The terms usually differ, including what the loan costs and how much you put down, because each non-QM program sets its own. Lower credit scores, larger loans, second homes and rental properties call for a larger down payment. When your file could fit both, compare the two loan estimates for the same home.
How long does each take?
A conventional loan often takes about three to four weeks once the file is complete. A bank statement loan often takes about three to four weeks too; a loan officer can tell you the timing for the other non-QM programs.
Can I use a non-QM loan for a second home or a rental?
For a home you live in, and in many programs a second home or a rental too. Investors buying rentals often use a DSCR loan instead: a business-purpose loan read on the property’s rent rather than your income.
Do you offer both?
Yes. Fidelity Residential is a licensed direct mortgage lender offering conventional and non-QM loans, licensed in 40 states and the District of Columbia. The full, current license list is on NMLS Consumer Access (opens in a new tab).
Not sure which one fits?
Get a quote, apply online, or talk your file through with a licensed loan officer.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on your income, credit, the home 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.