What Is a Non-QM Loan and Who Needs One?
Non-QM (Non-Qualified Mortgage) loans exist outside the "qualified mortgage" rules established by the Consumer Financial Protection Bureau in 2014. These aren't subprime loans—they're specialized products for creditworthy borrowers whose income doesn't fit traditional documentation requirements.
Important Distinction
Non-QM loans are NOT subprime loans. They serve borrowers with good credit and strong finances who simply can't document income through traditional W-2s and tax returns. According to Mo Abdel, NMLS #1426884, "Many of my Non-QM clients have 750+ credit scores and substantial assets—they just run their income through business entities."
Ideal Non-QM Candidates
- • Self-employed business owners
- • Real estate investors (5+ properties)
- • Gig economy/1099 contractors
- • Retirees with significant assets
- • Foreign nationals investing in US
- • Recent credit event recovery
Why Traditional Loans Fail These Borrowers
- • Tax returns show low income due to write-offs
- • Income varies significantly month-to-month
- • Rental income exceeds W-2 wages
- • No US credit history (foreign nationals)
- • Too many financed properties (10+ limit)
- • Recent BK/foreclosure with recovery
What Are the Different Types of Non-QM Loans?
Bank Statement Loans
Ideal for: Self-employed, business owners, gig workers
Use 12-24 months of bank deposits instead of tax returns to verify income.
Key Requirements:
- 12 or 24 month bank statements
- 620-680 minimum credit score
- 10-15% down payment typical
- Self-employment for 2+ years preferred
DSCR Investment Loans
Ideal for: Real estate investors, landlords
Qualify based on property rental income, not personal income documentation.
Key Requirements:
- DSCR ratio 1.0-1.25 minimum
- 660+ credit score
- 15-25% down payment
- Investment property only (not primary residence)
Asset Depletion Loans
Ideal for: Retirees, high-net-worth individuals
Convert liquid assets into qualifying income stream over loan term.
Key Requirements:
- Significant liquid assets ($500K+)
- 680+ credit score
- 20-25% down payment
- Assets divided by loan term = monthly income
Foreign National Loans
Ideal for: Non-US citizens investing in US real estate
No US credit history or income required; asset and down payment based.
Key Requirements:
- Valid passport and visa
- 25-30% down payment
- Foreign credit report or bank references
- US bank account for payments
How Do Non-QM Loans Compare to Conventional Loans?
| Feature | Conventional | Non-QM |
|---|---|---|
| Income Documentation | W-2s, tax returns required | Bank statements, assets, rental income |
| Minimum Credit Score | 620 | 580-680 (varies by program) |
| Down Payment | 3-20% | 10-25% |
| Interest Rates | Market rates | 0.5-2% higher than conventional |
| DTI Ratio Limit | 43-50% | Up to 55% (some programs) |
| Property Types | 1-4 units, condos | 1-4 units, condos, non-warrantable |
| Loan Limits | $1,266,300 (conforming) | Up to $3M+ (varies by lender) |
How Do I Apply for a Non-QM Loan in Orange County?
- 1
Determine Best Non-QM Program
Self-employed → Bank Statement. Investor → DSCR. Retiree → Asset Depletion. Foreign → Foreign National.
- 2
Gather Program-Specific Documents
Bank Statement: 12-24 months statements. DSCR: Lease agreements, rent rolls. Asset: Investment account statements.
- 3
Submit to Wholesale Non-QM Specialist
Mo Abdel accesses 100+ wholesale lenders including 20+ Non-QM specialists for the most competitive rates.
- 4
Receive Approval and Rate Lock
Non-QM underwriting is manual, typically taking 3-5 days longer than automated approvals. Lock rate once approved.
- 5
Close on Your Property
Non-QM closings typically take 30-45 days. DSCR investment loans may close faster with fewer conditions.
Frequently Asked Questions About Non-QM Loans
What is a Non-QM loan?
Non-QM (Non-Qualified Mortgage) loans don't meet the Consumer Financial Protection Bureau's 'qualified mortgage' standards but are legal, legitimate loan products. They serve borrowers who can't qualify through traditional documentation methods—self-employed, investors, foreign nationals, and those with recent credit events.
Who qualifies for Non-QM loans in Orange County?
Non-QM loans serve self-employed business owners, real estate investors, gig economy workers, retirees with significant assets, foreign nationals, and borrowers with recent credit events (bankruptcy, foreclosure) who have since recovered financially.
What credit score do I need for a Non-QM loan?
Non-QM credit requirements vary by product: Bank statement loans typically require 620-680+, DSCR investment loans 660+, asset depletion loans 680+. Some programs accept scores as low as 580 with compensating factors like larger down payments.
Are Non-QM loan rates higher than conventional loans?
Yes, Non-QM rates are typically 0.5-2% higher than conventional rates due to increased risk and manual underwriting. However, wholesale brokers can access more competitive Non-QM pricing than retail lenders, potentially saving 0.25-0.5% on rate.
What is the minimum down payment for Non-QM loans?
Non-QM down payments typically range from 10-25% depending on the program. Bank statement loans often require 10-15%, DSCR loans 15-25%, and asset depletion loans 20-25%. Higher down payments generally secure better rates.
How do bank statement loans work?
Bank statement loans use 12-24 months of personal or business bank deposits to calculate income instead of tax returns. The lender analyzes deposit patterns, excludes transfers, and applies an expense factor (typically 50% for business accounts) to determine qualifying income.
What is a DSCR loan for investment properties?
DSCR (Debt Service Coverage Ratio) loans qualify investors based on the property's rental income vs. mortgage payment rather than personal income. A DSCR of 1.0 means rent covers the payment; most lenders require 1.0-1.25 DSCR minimum.
Can't Qualify for a Traditional Mortgage?
Non-QM loans open doors for self-employed professionals, investors, and unique financial situations. Get a free consultation to explore your options with no credit check required.
Related Non-QM Resources
Mo Abdel | NMLS #1426884 | Lumin Lending, Inc. | NMLS #2716106 | DRE #02291443
Equal Housing Lender. All loans subject to credit approval, underwriting guidelines, and program availability. Terms and conditions apply. This is not a commitment to lend. Information is for educational purposes only and does not constitute financial advice. Contact a licensed loan officer for personalized guidance.