Non-QM (Non-Qualified Mortgage) loans are flexible home financing options that do not meet strict CFPB standards, allowing approval for borrowers with complex income, self-employment, or credit issues. They use alternative documentation (bank statements, asset-based, P&L) and allow higher debt-to-income (DTI) ratios, often up to 50%.

Key Features and Benefits

• Alternative Documentation: Instead of tax returns/W-2s, lenders may use 12-24 months of bank statements, 1099s, or asset depletion to verify income.
• Flexible Credit: Accessible to borrowers with recent bankruptcy, foreclosure, or lower credit scores.
• High Debt-to-Income (DTI): Allows for higher DTI ratios than conventional loans.
• Property Types: Suitable for investment properties, second homes, or unique properties.

Common Types of Non-QM Loans

• Bank Statement Loans: Ideal for self-employed individuals; uses personal or business bank deposits to determine income.
• DSCR Loans (Debt Service Coverage Ratio): Used by investors to qualify based on the property's rental income rather than personal income.
• Asset-Based/Asset Qualifier Loans: Uses liquid assets (stocks, bonds, cash) to qualify.
• ITIN Loans: Available for foreign nationals or borrowers without a Social Security Number.
• 1099 Loans: Designed for independent contractors using 1099 income.

Considerations

• Higher Costs: Non-QM loans often come with higher interest rates and fees to offset the increased risk to lenders.
• Not Subprime: Unlike pre-2008 subprime loans, lenders still must evaluate the borrower’s ability to repay.
• Down Payment: Typically require higher down payments compared to conventional loans.

These loans are ideal for real estate investors, freelancers, business owners, and borrowers with unique financial situations.