Non-QM (Non-Qualified Mortgage) loans provide flexible financing solutions for borrowers who fail to meet the rigid credit or income requirements of traditional programs like Fannie Mae, Freddie Mac, FHA, or VA. These loans "step outside the box" by using alternative verification methods, though they often require higher down payments and may include prepayment penalties.
While traditional loans must adhere strictly to Consumer Financial Protection Bureau (CFPB) "Ability to Repay" rules using standard tax documentation, Non-QM lenders look at the broader financial picture. This makes them essential for self-employed professionals, real estate investors, and high-net-worth individuals with complex income streams.
How do Bank Statement Loans work?
Bank Statement loans allow self-employed borrowers to verify income using monthly deposits rather than tax returns, which often show heavy deductions. Typically, we review the last 12 months of personal or business bank statements. For example, if a borrower averages $20,000 in monthly eligible deposits, we apply an expense factor (typically 50%, though it can range from 15% to 70%) to calculate a qualifying monthly income of $10,000.
What are DSCR Loans for investors?
Debt Service Coverage Ratio (DSCR) loans qualify borrowers based on the cash flow of the investment property rather than personal income or employment 1099s. If the projected rental income is equal to or greater than the monthly holding costs (principal, interest, taxes, insurance, and HOA fees), the loan can be approved. We offer Loan-to-Value (LTV) ratios as high as 85% for borrowers with strong credit, requiring no proof of personal income.
Why use Asset-Based Lending?
Asset-based loans verify a borrower’s ability to pay using a formula derived from their total residual assets rather than a monthly paycheck. By calculating "asset depletion," lenders can create a qualifying income figure. For instance, a borrower with $1,000,000 in qualifying assets divided by a 60-month factor would be credited with $16,666 in monthly qualifying income.
Financing Non-Warrantable Condos and Condo Hotels
Traditional Fannie Mae and Freddie Mac guidelines often reject "non-warrantable" condos, such as those that allow short-term rentals of less than 30 days or have high commercial space ratios.
Non-QM programs step in to fill this gap, providing financing for condo hotels and buildings that don't meet conventional underwriting standards, ensuring you don't lose out on a prime investment or vacation home.
Specialized 1099 and Self-Employed Solutions
For contractors and freelancers, 1099-only programs can represent qualifying income as high as 90% of the 1099 gross amount. This bypasses the sometimes aggressive expense deductions found on tax returns that might otherwise disqualify a borrower.
Other Non-QM Solutions include:
One Year Self-Employment: Qualifying with only 12 months of business history.
VOE Only: Verification of Employment as the primary income source.
P&L Only: Using a CPA-prepared Profit and Loss statement instead of tax filings.
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