What Is a Non-QM Loan?

Non-QM loans create lending opportunities for non-traditional borrowers. This can include: 

• Retirees 
• Real estate investors 
• Self-employed or “gig” workers 
• Borrowers with a high debt-to-income ratio 
• Borrowers with blemishes on their credit history 

If you are not qualified for a traditional loan, you may still be able to purchase your dream home by using a Non-QM loan. 

The Consumer Financial Protection Bureau (CFPB) maintains standards for determining a borrower’s ability to repay a home loan. Lenders typically determine if you meet the requirements by looking at documents such as:

• W-2s 
• Bank statements 
• Pay stubs 
• Tax returns

Non-QM loans allow for alternative income documentation outside of these typical items. 

Some Non-QM loans come with loan periods that exceed 30 years. This keeps you locked into a mortgage for a longer period and can also increase the total amount you pay for your home. 

You can meet the requirements for a Non-QM loan even if your credit score is fair or even poor. Most Non-QM loans are available for borrowers with a credit score of 620, while some Non-QM programs open the door to borrowers with credit scores as low as 580 or even 500. 

For a traditional loan, your lender will typically expect you to have a debt-to-income ratio of 43% or lower. But Non-QM loans are available even to those whose debt-to-income ratio is 50% or even higher — providing loan options to those whose debts might otherwise disqualify them from homeownership. 

Some lenders provide Non-QM loans only by reviewing your bank statements. This often requires 12 months of past bank statements. However, some lenders can offer loan options with as little as two months’ worth of statements. 

With an investor cash flow loan, the borrower is able to sidestep the need to submit income statements and tax returns. With this product the rental income of a property is solely used to qualify for the loan. This provides an outlet for investors to use the property itself to help cover the cost of the loan. 

An ITIN loan is a type of mortgage designed for individuals who do not have a Social Security Number (SSN) but instead possess an Individual Taxpayer Identification Number (ITIN). These loans are often geared toward non-U.S. citizens, such as immigrants or foreign nationals, who live and work in the U.S. and wish to buy a home.  

ITIN loans typically have more flexible eligibility criteria compared to traditional loans, but they may come with higher interest rates or larger down payment requirements due to the increased risk perceived by lenders. These loans allow individuals without an SSN to pursue homeownership and establish roots in the U.S. 

A 1099 loan is a type of mortgage specifically designed for self-employed individuals or independent contractors who receive 1099 forms for their income, rather than W-2s from traditional employment. Since these borrowers often don’t have the steady paycheck or conventional employment history required by traditional lenders, 1099 loans offer a flexible alternative by focusing on their overall income and financial health. 

Lenders may look at bank statements, tax returns, or other financial documentation to assess the borrower’s ability to repay the loan. While 1099 loans can have higher interest rates and may require a larger down payment, they provide a valuable option for self-employed individuals seeking home financing.