Non-QM

Non-QM stands for Non-Qualified Mortgage — a loan that doesn't fit inside the Qualified Mortgage rule that governs Fannie Mae, Freddie Mac, FHA, and VA loans. Non-QM is the legitimate, regulated category for borrowers whose income doesn't match the standard W-2-plus-tax-returns box. The two most common Non-QM products are Bank Statement (self-employed) and DSCR (real-estate investors). If you need a high-balance loan with standard documentation, that's a Jumbo loan — see our Jumbo page.

Personal statements: most of your deposits flow directly into qualifying income (after we screen out transfers and one-time deposits). Business statements: deposits are reduced by an expense factor — typically 50% by default, or a different percentage if you provide a CPA-prepared expense letter — before becoming qualifying income. We compare both paths and use whichever produces the stronger number.

Depends on how money flows through your business. If most revenue hits a business account first and you pay yourself a smaller draw, business statements with a low expense ratio usually win. If income lands directly in your personal account, personal statements are usually stronger because there's no expense-factor reduction. We model both before you commit.

Most programs accept either 12 or 24 months. Twelve-month programs are easier to document but often price slightly higher; 24-month programs price better because they show a longer trend. We pick based on which month range tells the strongest income story — if your last 12 months are notably better than the 12 before, we'll use 12-month.

No tax returns are required for income qualification — that's the whole point. We may ask for the most recent year's CPA-prepared P&L or a CPA letter to support the expense ratio on business statements, but never returns. If you do have strong returns, we'll often run them in parallel against conventional or FHA to see if those programs price better for you.

DSCR = property rental income divided by the property's total monthly payment (principal + interest + taxes + insurance + HOA). A DSCR of 1.0 means the rent exactly covers the payment; 1.25 means the rent is 25% above the payment. Most DSCR programs are most flexible at 1.0+, but several let you go below 1.0 in exchange for a lower LTV. We never look at your personal DTI.

Credit yes — your qualifying credit score determines pricing and the maximum LTV. Income, no. We don't ask for pay stubs, W-2s, tax returns, or employment verification. DSCR is structured as a business-purpose loan secured by an investment property; the property's cash flow is what qualifies the loan.

These four states have state-level licensing or regulatory environments that make business-purpose DSCR loans impractical for our correspondent partners. We can still help you finance investment properties in those states with conventional financing — it just won't be DSCR. (Most other states, including Texas, Arizona, Colorado, and Florida, are wide open for DSCR.)

Generally yes — Non-QM rates run modestly higher than the equivalent conventional or FHA loan because the loans don't carry the Qualified Mortgage safe harbor. The gap has narrowed significantly over the last few years as the Non-QM market has matured. We always price your file against conventional first and only recommend Non-QM when the documentation flexibility is worth the rate difference.

Bank Statement: yes — primary residence, second home, and investment property are all eligible. DSCR: no — DSCR is investment-property only, since it relies on the property generating rental income.

A prepayment penalty (PPP) is a fee for paying off the loan early — typically calculated as a percentage of the remaining balance, declining over the first 3–5 years. Owner-occupied Non-QM loans never carry a PPP. Investment-property loans (most DSCR loans, plus investor Bank Statement) can include an optional PPP in exchange for a better rate. If you plan to hold the property for several years, the PPP-version usually wins on total cost; if you flip or refinance frequently, take the no-PPP version.