Non-QM Mortgage Loans of July 2024

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A non-qualified mortgage (non-QM) is a type of home loan that does not meet the criteria established by the Consumer Financial Protection Bureau (CFPB) for a qualified mortgage (QM). These standards, set to ensure borrower safety and sound lending practices, include requirements, for example, lenders verify income and assets, they have limits on debt-to-income ratios, and restrictions on certain risky loan features like interest-only payments and negative amortization. Non-QM loans, however, offer more flexible guidelines, accommodating borrowers who might have non-traditional income sources or credit profiles that do not conform to QM standards.

Non-QM loans are particularly beneficial for self-employed individuals, gig workers, retirees, and others who cannot provide the standard income documentation required for QM loans, such as W-2s or pay stubs. Instead, these borrowers can use alternative forms of income verification, like bank statements, rental income, or asset-based documentation. While non-QM loans offer greater accessibility and flexibility, they often come with higher interest rates and larger down payment requirements. Additionally, these loans are not backed by government-sponsored entities like Fannie Mae or Freddie Mac, meaning the lender assumes more risk.


  1. Alternative Income Documentation. Borrowers can qualify using bank statements, rental income, 1099s, or asset qualifiers instead of traditional W-2s and pay stubs.

  2. Flexible Debt-to-Income Ratios. Non-QM loans may allow for debt-to-income ratios exceeding the typical 43% limit of QM loans, sometimes going above 50%.

  3. No Waiting Period After Major Credit Events. Some non-QM lenders do not impose a waiting period after events like bankruptcy or foreclosure, enabling quicker access to financing.

  4. Higher Down Payment Requirements. Borrowers might need to put down a minimum of 15-20%, compared to lower down payment options available with QM loans.

  5. Interest-Only Monthly Payment Options. Non-QM loans can offer interest-only payments for a specified period, reducing initial monthly payments but delaying principal repayment.

Pros and Cons


Access for Non-Traditional Borrowers. Individuals with non-traditional income sources, such as self-employed borrowers or gig workers, can secure mortgages despite lacking standard documentation for traditional loans.

Greater Flexibility. The lenient guidelines accommodate borrowers with unique financial situations, allowing for alternative income verification methods and higher debt limits.

Immediate Post-Credit Event Financing. Borrowers can obtain financing shortly after significant credit events like bankruptcy or foreclosure, without the lengthy waiting periods required by QM loans.


Higher Interest Rates. Non-QM loans typically come with higher interest rates than qualified mortgages, increasing the overall cost of borrowing.

Larger Down Payments. Borrowers may be required to make a larger down payment, which can be a barrier for those without significant upfront funds.

Increased Risk. Features like interest-only payments and higher debt-to-income ratios can increase the risk of default, especially if the borrower’s financial situation changes.

How to Get a Non-QM Mortgage

Apply for a loan

  1. Assess Your Financial Situation. Determine your financial readiness by reviewing your income sources, credit history, and current debts. Non-QM lenders will look at alternative documentation, to gather relevant records such as bank statements, 1099s, rental income receipts, and proof of assets.

  2. Research Lenders. Look for mortgage lenders that specialize in non-QM loans. Read reviews and compare terms to find reputable lenders who offer the specific loan features you need.

  3. Consult with a Mortgage Broker. Consider working with a mortgage loan broker who has experience with non-QM loans. They can help you navigate the different options and find a lender that suits your needs.

  4. Submit Your Application. Complete the lender's application process, providing all required documentation. Be prepared to explain any unique aspects of your financial situation, such as the reason for using alternative income verification.

  5. Review Loan Offers. Once you receive loan offers, carefully review the terms, including interest rates, down payment requirements, and any unique repayment conditions. Ensure you understand all aspects of the loan before committing.

  6. Close the Loan. After selecting the best loan offer, proceed to close the loan. This involves signing the loan agreement and providing any necessary upfront costs, such as the down payment and closing fees.


  1. Minimum Credit Score. While more flexible, most non-QM lenders still require a minimum credit score, often around 620, though some may accept lower scores depending on other factors.

  2. Proof of Income. Borrowers need to provide alternative income documentation such as: 12 to 24 months of bank statements, recent tax returns, proof of rental income, 1099 forms

  3. Down Payment. A minimum down payment of 15% to 20% is typically required.

  4. Debt-to-Income Ratio (DTI). Lenders may accept DTIs over 43%, but applicants should still demonstrate the ability to manage existing debts. Some lenders may allow DTIs as high as 50% or more.

  5. Stable Employment or Income Source. While non-QM loans are more flexible, borrowers still need to show stable and consistent income, whether from employment, self-employment, or other sources for lenders to ensure their ability to repay.

  6. Adequate Reserves. Borrowers may need to show proof of reserves, such as savings or liquid assets, equivalent to several months of mortgage payments.

  7. Documentation of Assets. For asset-based qualifications, borrowers need detailed documentation of their assets, such as investment accounts, retirement accounts, or other significant holdings.


  1. Higher Interest Rates. Non-QM loans typically come with higher interest rates compared to qualified mortgages, often 1% to 2% above the prime mortgage rate.

  2. Flexible Income Documentation. Borrowers can use alternative income documentation such as bank statements, tax returns, rental income, or 1099s instead of traditional W-2s and pay stubs.

  3. Higher Down Payment. Non-QM loans often require down payments ranging from 15% to 20% of the home's purchase price.

  4. Interest-Only Payments. Some non-QM loans offer interest-only payment options for an initial period, which can lower initial monthly payments but will eventually increase when the principal payments start.

  5. Longer Loan Terms. Non-QM loans may have longer repayment terms than the standard 30 years, sometimes extending to 40 years or more.

  6. No Waiting Period After Major Credit Events. Borrowers can qualify for a non-QM loan shortly after events like bankruptcy or foreclosure, with some lenders allowing approval as soon as one day after the event.

  7. Higher Debt-to-Income Ratio Allowed. Non-QM loans may permit debt-to-income ratios above 43%, sometimes up to 50% or higher, depending on the lender.

  8. No Government Backing. Non-QM loans are not backed by Fannie Mae, Freddie Mac, the FHA, VA, or USDA, meaning lenders assume all the risk.

Ways to Get the Money

  1. Certified Check. Some borrowers may choose to receive mortgage funds in the form of a certified check issued by the lender or closing agent. This method provides a physical form of payment that can be deposited into the borrower's bank account.

  2. Escrow Disbursement. In some cases, mortgage funds are held in an escrow account and disbursed to the appropriate parties at closing. This method ensures that all closing costs and fees are paid before releasing the remaining funds to the borrower.

  3. Direct Deposit. Certain lenders offer the option for mortgage funds to be directly deposited into the borrower's bank account on the day of closing. This electronic transfer provides immediate access to the loan proceeds without the need for physical checks or wire transfers.

Best Places to Get a Non-QM Mortgage

Angel Oak Mortgage Solutions

Angel Oak Mortgage Solutions is a nationwide lender that stands out for its specialization in non-QM (non-qualified mortgage) lending, although it also offers conventional loans. With four main non-QM options, Angel Oak provides competitive rates and serves borrowers who might not qualify for traditional financing. Its bank statement loan allows self-employed individuals to use their assets for loan qualification rather than relying on employment verification. Additionally, Angel Oak caters to real estate investors by using the prospective cash flow of the property as a qualification criterion. For those with recent bankruptcies or foreclosures, Angel Oak offers programs to bypass typical waiting periods and facilitate a quicker return to homeownership.

New American Funding

New American Funding provides a variety of non-QM loan programs tailored to self-employed individuals, those seeking jumbo loans, or borrowers with unique credit issues. It also offers non-QM loans for prime borrowers who might benefit from specialized financing options such as interest-only loans. With a maximum loan amount of $2.5 million and a maximum cash-out amount of $500,000, New American Funding is a strong contender for those looking to refinance jumbo loans. The lender also supports diverse communities, including Latinx, Black, and military borrowers, and operates physical branches in 33 states, making it accessible for a wide range of non-QM loan seekers.

North American Savings Bank (NASB)

North American Savings Bank (NASB), based in Kansas City, has significant lending experience, having closed on 100,000 mortgages since 2010, totaling $30 billion. NASB offers 11 different types of non-QM loans, including options for self-employed borrowers, those with past financial issues, investors, and individuals needing smaller down payments or bridge loans. Despite its comprehensive offerings, NASB primarily operates physical locations in the Kansas City area, which might be a limitation for those outside the Midwest preferring face-to-face interactions. Nonetheless, its diverse loan products make NASB a versatile choice for complex borrowing situations.

CrossCountry Mortgage

CrossCountry Mortgage, headquartered in Cleveland, is a lender approved to operate in all 50 states, known for its reliability and extensive range of loan products. It offers non-QM loans based on bank statements, asset-based qualifications, and investor-specific loans. Uniquely, CrossCountry also provides loans for foreign nationals, who often lack a credit score, making it a valuable option for this demographic. With branches nationwide and user-friendly online services, CrossCountry ensures a streamlined loan application process, allowing potential borrowers to quickly obtain quotes through its website.

Things to Pay Attention To

  1. Interest Rates. Non-QM loans typically have higher interest rates compared to qualified mortgages. Ensure you understand the rate offered and how it impacts your monthly payments and total loan cost.

  2. Down Payment Requirements. Non-QM loans often require higher down payments, usually between 15% to 20%. Be prepared to meet this requirement and understand how it affects your initial cash outlay.

  3. Repayment Terms. Carefully review the repayment terms, including whether the loan has an interest-only period, balloon payments, or longer-than-usual terms. Understand the implications of these features on your future financial obligations.

  4. Loan Fees and Closing Costs. Non-QM loans can come with higher fees and closing costs. Make sure to get a detailed breakdown of these expenses upfront and factor them into your overall budget.

How to Repay a Non-QM Mortgage?

  1. Understand Your Repayment Terms. Before making your first payment, review the loan agreement to understand the repayment schedule, including due dates, payment amounts, and any special terms like interest-only periods or balloon payments.

  2. Set Up Automatic Payments. To ensure timely payments, set up automatic withdrawals from your bank account. This helps avoid late fees and keeps your loan in good standing.

  3. Monitor Your Loan Balance. Regularly check your loan balance and payment history to ensure accuracy. Keeping track of your loan balance helps you understand how much you owe and monitor your progress toward repayment.

  4. Make Extra Payments When Possible. If your loan terms allow, consider making extra payments toward the principal. This can reduce the total interest paid over the life of the loan and help you pay off the mortgage faster.

  5. Be Prepared for Interest-Only Payment Periods. If your loan includes an interest-only payment period, plan for the eventual increase in monthly payments when principal payments begin. Set aside funds to prepare for higher payments or make additional payments during the interest-only period if allowed.

  6. Stay in Communication with Your Lender. Maintain open communication with your lender, especially if you encounter financial difficulties. Many lenders can offer temporary solutions, such as forbearance or loan modification, to help you manage payments.

Reasons for Getting Rejected for a Non-QM Mortgage

  1. Insufficient Income Documentation. Even though non-QM loans accept alternative documentation, failing to provide adequate proof of income, such as consistent bank statements or tax returns, can lead to rejection.

  2. High Debt-to-Income Ratio. While non-QM loans allow for higher DTIs, there is still a limit. If your DTI is excessively high, it might signal to lenders that you are over-leveraged and unable to handle additional debt.

  3. Poor Credit History. A history of late payments, defaults, or other negative credit events can lead to rejection. Non-QM lenders still assess credit risk, and poor credit can be a significant factor.

  4. Recent Major Credit Events. Although some non-QM lenders cater to borrowers with recent bankruptcies or foreclosures, extremely recent or unresolved credit events may still result in denial.


Conventional Loans

Conventional loans are not insured or guaranteed by the federal government and typically require higher credit scores and down payments compared to FHA, VA, or USDA loans. However, they offer more flexibility in terms of loan amounts and property types. Borrowers with strong credit profiles (usually a minimum credit score of 620) and the ability to make a down payment of at least 3% can benefit from potentially lower interest rates and the ability to cancel PMI once their equity reaches 20%.

Portfolio Loans

Portfolio loans are mortgages that lenders keep in their own portfolios rather than selling them on the secondary market. Because they are not subject to Fannie Mae or Freddie Mac guidelines, lenders have more flexibility to tailor these loans to borrowers with unique financial situations, such as those with non-traditional income sources or significant assets. While interest rates and terms can vary widely, portfolio loans offer a customizable alternative for borrowers who may not meet the criteria for conventional or government-backed loans.

Hard Money Loans

Hard money loans are short-term loans secured by real estate, often used by real estate investors for projects like house flipping. These loans are typically issued by private lenders or investor groups rather than traditional banks. Because hard money loans focus more on the value of the property being used as collateral rather than the borrower's creditworthiness, they can be obtained quickly and with less rigorous documentation. However, these loans come with higher interest rates and fees, and shorter repayment periods, usually 12 months to a few years, making them a costly but flexible solution for quick financing needs.

Bridge Loans

Bridge loans are temporary financing options designed to bridge the gap between the sale of an existing property and the purchase of a new one. These loans are often used by homeowners who need to purchase a new home before their current home is sold. Bridge loans are secured by the existing property and can provide immediate funds for a down payment on the new property. They typically come with higher interest rates and fees compared to conventional loans, and have short terms, usually six months to a year. Despite the higher costs, bridge loans offer a convenient solution for those needing to quickly access capital.

Editorial Opinion

Non-QM mortgages play a crucial role in the housing market by providing financing options to borrowers who do not fit the mold of lending criteria for traditional mortgages. This inclusivity is essential for enabling a diverse range of individuals to achieve homeownership, particularly in a landscape where employment patterns and income sources are increasingly varied. However, the higher costs and potential risks associated with non-QM loans cannot be overlooked. Borrowers must carefully assess their financial situation and the loan terms to ensure they can manage the payments and avoid potential pitfalls such as higher interest rates and the lack of government backing.


Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Mortage Lender

  1. Check Associations. Look for lenders who are members of reputable organizations, such as the Mortgage Bankers Association (MBA). Membership in these organizations can indicate a higher level of reliability and professionalism.

  2. Review Terms and Conditions. Carefully examine all the terms and conditions of the mortgage contract. Pay special attention to details like the loan term, fixed vs. variable interest rates, and any prepayment penalties.

  3. Interest Rates and Costs. Scrutinize the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the mortgage, including closing costs, origination fees, and any other charges.

  4. Right of Rescission. Remember you can utilize your right of rescission, which typically allows you to cancel the mortgage within three days after signing the agreement. Additionally, use the "cooling-off" period to thoroughly review the contract and make an informed decision before finalizing the mortgage agreement.

  5. Compare Offers. Shop around and compare offers from multiple lenders to find the best rates and terms that suit your financial situation.

Additional resources


What credit score do you need for a non-QM mortgage?

The credit score requirements for a non-QM mortgage vary significantly among lenders due to the flexibility inherent in non-qualified mortgage products. Typically, non-QM lenders may approve borrowers with credit scores as low as 620, but some may even consider scores below this threshold, especially if the borrower demonstrates strong compensating factors such as substantial assets, a significant down payment, or a history of positive cash flow. Unlike traditional loans that adhere strictly to credit score benchmarks, non-QM lenders evaluate the overall financial picture of the borrower, including income documentation through alternative methods like bank statements or rental income.

Do non-QM loans have PMI?

Non-QM loans typically do not require private mortgage insurance (PMI), even if the borrower makes a down payment of less than 20%. This is one of the key advantages of non-QM loans, as PMI can significantly increase the overall cost of a mortgage. However, because non-QM loans are considered riskier than traditional qualified mortgages, lenders may compensate for the lack of PMI by charging higher interest rates or imposing more stringent lending criteria. It's essential for borrowers to carefully review the terms and conditions of a non-QM loan to fully understand the costs involved.

Do non-QM loans have higher interest rates?

Yes, non-QM loans typically come with higher interest rates compared to traditional qualified mortgages. This is primarily because non-QM loans carry a higher risk for lenders. Borrowers seeking non-QM loans often have non-traditional income streams, lower credit scores, or recent significant credit events, which increase the likelihood of default. To mitigate this risk, lenders charge higher interest rates, which can range from a few percentage points above those of conventional loans to significantly higher, depending on the borrower's financial situation and the specific terms of the loan. While non-qualified mortgages or other loans offer greater flexibility and accessibility, the trade-off is the increased cost of borrowing.