How Do Non-QM Loans Work?

what if you don’t qualify through traditional means? This is an issue that self-employed and other non-W2 workers often face since their proof of income and employment differs from what lenders typically require.

The good news is that those who don’t meet the criteria for a qualified mortgage can be offered a non-qualified mortgage instead. Let’s explore the non-QM loan option and see if this is the right choice in your situation.

What is a Non-QM loan?

Non-qualified loans are designed to help homebuyers who don’t meet the standard requirements to qualify for a mortgage. They feature more flexible eligibility requirements on DTI, credit scores, and loan amounts.

To better understand what a non-qualifying loan is, let’s review the list of requirements for a traditional mortgage:

  • Income. You must provide pay stubs, W2s, and tax returns to verify your income.
  • DTI. This is the amount of your monthly income that is paid toward existing debts. Your debt to income ratio should be 43% or lower.
  • Fees. Your loan fees and points can’t be more than 3% of the loan amount.
  • Term. The loan term must be 30 years or less.

If you can’t provide the aforementioned things, a non-qualifying mortgage is worth exploring. It should be noted that non-QM loans are not government-backed or part of Fannie Mae or Freddie Mac.

Benefits of Non-QM loans

Non-QM loans make mortgages more accessible to a broader market. They also require less formal documentation compared to other types of loans. You don’t need to submit W2s, tax returns, or employment verifications. Bank statements and a list of assets are often enough for loan approval.

Minimum credit scores for non-QM loans can be up to 100 points lower than qualified mortgages and feature more flexible terms, which are not available in most qualified mortgages. Even a 40-year loan term!

Should You Get a Non-Qualified Loan?


A non-QM loan is a good option when you have a stable income that allows you to make regular, on-time mortgage payments but can’t meet a qualifying mortgage requirement. This is often the case with:

  • Freelancers
  • Doctors
  • Consultants
  • Lawyers
  • Real estate agents
  • Small business owners
  • Retirees
  • Borrowers with high assets and low income
  • Borrowers with high DTI
  • Borrowers with low credit scores

There has been a misconception that Non-QM loans are bad loans and borrowers should avoid them. The truth is, similar to qualified mortgages, today’s non-QM loans have their own set of guidelines. The lending process is the same apart from the loan documents needed.

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