What is a Non-QM Loan?
As you work your way through the home buying process, you’ll begin to realize that mortgage lenders typically have a set of requirements in order to qualify you for a home loan. These might include having a steady income, at least two years of employment history, and outstanding credit history, among others.
It’s important to remember that this does not mean your home is out of reach.
Mortgage lenders understand that not every homebuyer fits into the same mold. There are plenty of mortgage solutions for borrowers with unique financial backgrounds, such as non-qualified mortgages, that can help make homeownership possible.
What is a Qualified Mortgage?
In order to better understand a Non-QM, it is helpful to be familiar with the criteria of a qualified mortgage. A qualified mortgage (QM-loan) is a home loan that meets certain standards set forth by the Consumer Protection Act and the Dodd-Frank Wall Street Reform Act, signed by President Obama following the 2008 housing crisis.
The requirements for a qualified mortgage include:
- Requires verification of income, otherwise known as the “ability-to-repay” rule
- The debt ratio cannot exceed 43%
- Points and fees should not exceed 3% of the loan amount
- The loan cannot have risky features such as negative amortization or interest-only
- The loan term cannot exceed 30 years
These guidelines were adopted by the Consumer Financial Protection Bureau (CFPB) to help prevent poor lending practices that sparked the previous financial crisis.
What is a Non-Qualified Mortgage?
A Non-Qualified Mortgage (Non-QM) is a loan that doesn’t meet the standards of a qualified mortgage and uses non-traditional methods of income verification to help a borrower get approved for a home loan. These types of loans are for borrowers with unique income-qualifying circumstances.
Who Can Benefit from a Non-QM Loan?
Non-QM loans fill the gap for borrowers who may be self-employed, have non-traditional income, or have had difficulty qualifying for a QM loan due to credit issues in the past. Non-QM loans have underwriting guidelines that allow the lender to view the “bigger picture” of your financial history, thus determining a borrower’s ability to repay in a slightly different lens than usual.
You may find a Non-QM loan beneficial if you are any of the following:
- Self-employed borrower
- Real estate investor
- Foreign national
- Prime or non-prime borrower
- Borrowers with significant assets
- Medical professional
You can use a non-QM loan for new home purchases, refinances, investment homes, or second homes.
The Types of Non-QM Loans
Not every borrower fits the conventional mold, and that’s okay. First Heritage Mortgage offers a full suite of Non-QM programs to match your unique financial situation.
| Loan type | Best for | How you qualify | Min. down payment | Min. credit score | Property types |
|---|---|---|---|---|---|
| Bank statement | Self-employed borrowers | 12–24 months of personal or business bank deposits in place of tax returns | 10–20% | 620+ | Primary, second home, investment |
| DSCR | Real estate investors | Property rental income covers the mortgage payment (DSCR ≥ 1.0); no personal income required | 20–25% | 620+ | Investment only |
| Asset utilization | Savings, investments, or retirement accounts are divided over the loan term to produce qualifying income | Savings, investments, or retirement accounts divided over the loan term to produce qualifying income | 20% | 640+ | Primary, second home |
| 1099 | Freelancers & contractors | 1–2 years of 1099 forms instead of full tax returns; ideal when deductions reduce reported net income | 10–20% | 620+ | Primary, second home, investment |
| Foreign national | Non-U.S. residents | International credit reports, foreign bank references, and proof of overseas income; no U.S. credit history required | 25–30% | No U.S. score required | Primary, second home, investment |
| Interest-only | Growing income or investors | Standard income documentation; interest-only payment period of 5–10 years before transitioning to principal + interest | 20% | 680+ | Primary, second home, investment |
| Jumbo Non-QM | High-value property buyers | Any Non-QM qualification method above; designed for loan amounts typically starting at $2M+ | 20–30% | 680+ | Any Non-QM qualification method above, designed for loan amounts typically starting at $2M+ |
Not sure which program fits your situation?
Our loan officers specialize in Non-QM lending and can help you identify the right path.
Are Non-QM Loans a Safe Option?
A common misconception is that non-QM loans are “bad loans” in disguise. Similar to QM loans, these types of loans have their own set of guidelines to ensure that the borrower and lender are protected from a high-risk loan. The lending process is quite similar, just with a different set of documents during the application process.
Frequently Asked Questions (FAQ)
The Basics
A Non-QM (Non-Qualified Mortgage) is a home loan that doesn’t meet the standard guidelines set by the Consumer Financial Protection Bureau (CFPB). Instead of requiring traditional income documentation like W-2s and tax returns, Non-QM loans use alternative ways to verify your ability to repay — such as bank statements, asset balances, or rental income from a property. They’re designed for borrowers with solid financial footing who simply don’t fit the conventional mold.
Conventional loans follow strict guidelines around income documentation, debt-to-income ratios (typically capped at 43%), and loan features. Non-QM loans offer more flexibility on all three fronts. They’re not “subprime” loans — they still require a demonstrated ability to repay, just evaluated differently.
No. Modern Non-QM loans are responsibly structured, fully documented, and regulated. They were created precisely to serve creditworthy borrowers who are underserved by standard guidelines — not to cut corners. Your lender is still required to assess your ability to repay; they just use a broader set of tools to do it.
Who Qualifies
Self-employed borrowers and business owners whose tax returns understate their actual income
Real estate investors who want to qualify based on rental income rather than personal income
Foreign nationals purchasing U.S. property without a U.S. credit history
Borrowers with recent credit events (such as a bankruptcy or foreclosure) who don’t yet meet conventional waiting periods
High-income professionals with complex finances, such as doctors or attorneys carrying student debt
Borrowers seeking loan features not available in conventional products, like interest-only payments or higher debt-to-income ratios
Yes — this is one of the most common uses. Bank statement loans are a popular Non-QM option that allows you to qualify based on 12–24 months of personal or business bank deposits, rather than your tax returns. This is ideal if you write off significant business expenses that reduce your reported income on paper.
Yes. DSCR (Debt Service Coverage Ratio) loans are a Non-QM product built specifically for investors. Instead of looking at your personal income, the lender evaluates whether the rental income from the property covers its mortgage payment. A DSCR of 1.0 means the property breaks even; above 1.0 means positive cash flow.
Loan Details
Non-QM loans can be used for primary residences, second homes, and investment properties (single-family, condos, and in some programs, multi-unit properties). Your lender can confirm which property types are eligible under a specific program.
Down payment requirements depend on the program, property type, and your credit profile. Generally, expect a minimum of 10–20% for a primary residence and 20–25% for an investment property. A larger down payment often results in better rates and terms.
Working With First Heritage Mortgage
Yes. We offer a range of Non-QM mortgage solutions tailored to borrowers with unique financial circumstances, including options for self-employed borrowers, real estate investors, foreign nationals, and more.
The best starting point is a conversation with one of our loan officers. We’ll review your financial situation, explain which programs you may qualify for, and help you find the best path to homeownership or your next investment property.
Connect with a First Heritage Mortgage loan officer or apply online to get the process started.
Whether you’re self-employed with hard-to-document income, a real estate investor building your portfolio, a foreign national looking to purchase U.S. property, or simply someone whose financial story doesn’t fit neatly into a conventional loan application, a Non-QM mortgage may be the key to making homeownership a reality. These loans exist because qualified borrowers come in all shapes and sizes — and a tax return alone may not tell the whole story.
At First Heritage Mortgage, our loan officers specialize in understanding the full picture of your financial situation and matching you with the right program for your goals. The path to your next home or investment property may be closer than you think. Connect with a loan officer today, and let’s find the solution that works for you.
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The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 08/23/2019. Last updated 5/14/2026
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By refinancing an existing mortgage, the consumer’s total finance charges may be higher over the life of the loan. Contact your First Heritage Mortgage loan officer for more details.