Not every borrower fits neatly into the traditional mortgage box—and that’s okay. Whether you’re self-employed, investing in rental properties, have complex income streams, or experienced credit hiccups, there are still options available.

That’s where non-QM loans come in.

Non-QM (non-qualified mortgage) loans are designed for borrowers who don’t meet the standard income, credit, or documentation requirements set by Fannie Mae, Freddie Mac, or government-backed loan programs like FHA or VA. While these loans often come with higher interest rates and down payment requirements, they offer flexibility where it matters most.

Let’s unpack what non-QM really means and walk through the different types of programs currently available in the marketplace.

What Is a Non-QM Loan?

A non-QM loan is simply a mortgage that doesn’t meet the federal government’s definition of a “qualified mortgage.” Qualified mortgages follow strict rules around debt-to-income (DTI) ratios, income documentation, and underwriting criteria to protect lenders from risk.

Non-QM loans, on the other hand, allow lenders to make common-sense decisions using alternative documentation, creative qualifying methods, or more lenient credit standards.

These loans can be used for primary residences, second homes, or rental properties, and they’re often a go-to option for:

• Self-employed borrowers
• Real estate investors
• Borrowers with recent credit events (BK, foreclosure)
• High-net-worth individuals with limited income
• People with high DTIs but strong reserves or equity

Now, let’s take a deeper look at the specific types of non-QM programs available today.

1. Debt Service Coverage Ratio (DSCR) Loans

DSCR loans are a popular non-QM option for real estate investors. Rather than using your personal income to qualify, these loans evaluate the cash flow of the rental property itself.

How it works: Lenders calculate a debt service coverage ratio by dividing the property’s gross monthly rent by the new mortgage payment (PITI). A DSCR of 1.00 or higher means the property pays for itself. Some lenders allow DSCRs as low as 0.75 depending on reserves and credit.

Example: If your rental property brings in $2,500/month and your total monthly payment is $2,200, your DSCR is 1.13—well within range.

Credit flexibility: Some DSCR programs go as low as a 500 credit score, especially for purchases with strong down payments (typically 25-30%+). That’s significant for investors who’ve had recent life events that hurt their credit but have the assets or income-producing properties to support a new purchase.

Best for: Portfolio investors who want to scale quickly without jumping through traditional income verification hoops.

2. Bank Statement Loans

Bank statement loans are tailored for self-employed borrowers or business owners who don’t have traditional W-2s or pay stubs. Instead of using tax returns, lenders review 12 to 24 months of personal or business bank statements to determine income.

Key points:

• Income is calculated based on monthly deposits (usually averaging them out).
• Business expenses are accounted for—some lenders apply a fixed expense ratio (e.g., 50%).
• Requires a strong credit profile (typically 660+), although some programs allow lower.

Example: You’re a freelance graphic designer depositing an average of $15,000/month into your business account. Even if your tax returns show little taxable income due to write-offs, a lender may still qualify you using those deposits.

Best for: Self-employed borrowers who earn well but write off too much on taxes to qualify conventionally.

3. Asset Depletion Loans

This program is designed for retirees or high-net-worth individuals who have significant assets but limited income. Instead of monthly income, the lender uses your liquid asset base to determine your ability to repay.

How it works: Assets like savings, brokerage accounts, or retirement accounts are divided by a set term (often 60 to 120 months) to create a monthly income figure.

Example: You have $1.2 million in a brokerage account. A lender divides that by 120 months and calculates $10,000/month of “deemed income” for qualifying purposes.

Who it helps: Retirees, early retirees, or individuals who have sold a business and are asset-rich but income-light.

4. Recent Credit Event Programs

Some non-QM lenders offer programs for borrowers who’ve had a bankruptcy, foreclosure, short sale in the recent past or even have bad credit currently.

Where traditional lenders may require a 4-to-7-year waiting period, non-QM programs may only require:

• 1 day out of bankruptcy discharge or foreclosure sale date
• Higher down payment (typically 20-30%)
• Interest rates typically higher (mid-to-high 8% range, depending on LTV and credit)

These loans can help borrowers get back into homeownership faster, especially when income and reserves are strong.

5. Interest Rates and Terms

Non-QM rates vary widely depending on:

• Loan type
• Credit score
• Occupancy
• Loan-to-value (LTV)
• Documentation type

General rate range as of today:

Program Type	Interest Rate Range
DSCR Loans	7.75% – 9.25%
Bank Statement Loans	7.25% – 9.00%
Asset Depletion Loans	6.99% – 8.75%
Recent Credit Event Loans	8.50% – 10.50%
Full Doc Non-QM	6.75% – 7.75%

Rates can be higher or lower depending on how the file is structured—and yes, there are options for interest-only loans, 40-year terms, and ARM products too.

The Bottom Line

Non-QM loans serve a very real and growing need in the marketplace. Whether you’re buying a primary home, refinancing a second home, or expanding your investment portfolio, these programs can help you navigate situations where conventional financing won’t get you there.

They aren’t for everyone—and they aren’t always cheap—but they’re often the right fit when your income, credit, or property type falls outside the box.

The key is working with a mortgage professional who understands how to properly structure the loan, explain the trade-offs, and navigate the non-QM landscape with confidence.

If you’re not quite sure if you qualify conventionally—or if you’ve been turned down and still want to explore options—there may be more available to you than you think.

Call me today for more information (707) 217-4000