The Best In Non-QM Loans

Conventional mortgage lenders rely heavily on W-2 forms, pay stubs, and consistent employment history to verify income. For self-employed individuals, this creates several hurdles:

• Income Documentation: Your tax returns may show lower income due to business deductions and write-offs, even though your actual cash flow is much higher. Non-QM loans provide borrowers with the option to qualify for a home loan using alternative income documentation.
• Income Consistency: Seasonal businesses or project-based work can create irregular income patterns that don’t fit traditional lending models.
• Employment Verification: Without an employer to verify your job stability, lenders may view self-employment as higher risk.
• Debt-to-Income Calculations: Business expenses and fluctuating income can make it difficult to meet standard debt-to-income requirements.

Understanding these challenges is the first step in learning how to get a home loan self-employed successfully.

A non-QM loan is short for a non-qualified mortgage loan. It’s a type of mortgage that doesn’t conform to the lending criteria set by the Consumer Financial Protection Bureau (CFPB). This means that non-QM loans allow lenders to be more flexible with their standards and requirements for borrowers. Depending on the lender and the type of non-QM loan, applicants may be able to qualify with a higher DTI ratio and lower credit score than a traditional mortgage. Some types of non-QM loans, like bank statement loans, accept alternative forms of income verification if the applicant is self-employed or has a non-traditional income stream. Lastly, some Non-QM loans allow borrowers to make interest-only payments – something that isn’t permitted for a QM loan. All in all, non-QM loans give aspiring homeowners with unique circumstances an opportunity to buy property in the US. The term “non-QM” is an umbrella term that covers several loan types. These loans are tailored to fit the needs of borrowers with different circumstances, and each have different requirements. Below, we’ve outlined the most common non-QM mortgage options:

• Bank Statement Loans: For those with non-traditional income. Use your personal or business bank statements to qualify.
• P&L Loans: For business owners. Use your business’ P&L statements to qualify. 
• DSCR Loans: For real estate investors or anyone looking to purchase an investment property. Use your investment property’s income to qualify. 
• Interest-Only Options: For those who are looking for a lower monthly payment to improve cash flow or expect their income to increase in the near future. Interest-only period lasts for five to 10 years before the mortgage is fully amortized. 
• Asset Depletion Options: For high-net-worth individuals or those who have significant investments. Use your liquid assets in lieu of income to qualify. 
• Foreign National Loans: For foreign nationals who are non-US citizens or non-US permanent residents. No US credit score is required. 

• Non-US citizens 
• Non-US residents
• Those without a social security number

These loans make it easier for foreign nationals to buy property in the US without a US credit score (FICO), green card, visa or social security number. Typically, foreign national loans are non-qualified or nonconforming mortgages (also known as non-QM), which means that they don’t need to meet the strict underwriting guidelines of government agencies, such as the CFPB. Not having to adhere to these guidelines allows lenders to be more flexible when it comes to approving loans for foreign national borrowers. 

Non-QM loans can be a great tool for a wide demographic of borrowers. Anyone who has trouble qualifying for a QM loan would benefit significantly from a non-QM mortgage. This could include, but is not limited to self-employed individuals looking for a mortgage, entrepreneurs, retirees and more. Check out the full list:

• Gig workers 
• Entrepreneurs 
• E-commerce Professionals 
• Individuals With Multiple Streams of Income
• Influencers
• Freelancers 
• Consultants
• Independent Contractors/1099
• Small Business-owners
• Self-employed Individuals 
• Artists 
• Real Estate Investors
• Truck Drivers   
• Retirees
• Those with liquid assets
• Rental property owners
• Hourly-wage earners
• Annual or quarterly commissioned borrowers
• Those with income gaps or employment gaps

The main difference between a QM and non-QM mortgage are the lending standards. QM lending standards are strict due to the Consumer Financial Protection Bureau (CFPB) criteria that QM lenders have to follow. Whereas non-QM mortgages aren’t required to abide by these rules, so non-QM lenders have more leeway with setting qualification requirements and allow alternative income documentation methods as a way to qualify for a home loan. This DOES NOT mean that Non-QM borrowers, don't have to show income. Rather, it means there are alternative income documentation methods like bank statements, and income from a rental property that can be used to help the borrower qualify for the home loan they need.

Yes! Non-QM mortgages are safe as long as you choose a reputable and experienced lender. Non-QM mortgages are usually offered by alternative or private mortgage lenders, like us! Defy Mortgage offers multiple non-QM options to choose from. These loans, Non-QM loans, are not the same as loans that are considered, "no income documentation" loans. We do not offer "no income documentation" loan at Defy Mortgage.

If you are interested in speaking with a lender who specializes in Non-QM loans, hit us up and we can help you find the right fit for you. 

One of the main benefits of a non-QM loan is the flexibility it offers individuals with less common circumstances. Here are some ways that non-QM loans are more flexible than conventional loans: 

• Wider variety of loan types: When it comes to non-QM loans, there’s a wider variety of loan types that cater to the needs of those in unique situations. In the next section, we’ll be covering the different types of non-QM loans in further detail. 
• Less strict credit requirements: Since non-QM loans are targeted toward individuals who may not qualify for a traditional mortgage, lenders will generally have less strict credit requirements for non-QM loans compared to traditional loans. 
• Flexible underwriting standards: Non-QM loans have the ability to use alternative forms of income verification, such as bank statements, alternative asset-based income, or rental income and options.
• Accept other forms of income verification: Having other ways to verify an applicant’s income makes it easier to qualify for those who have non-traditional employment. 

Overall, non-QM loans can make homeownership more accessible for a wider group of people, which is a significant benefit for those who aren’t able to qualify for a conventional mortgage. 

Depending on the type of non-QM loan you’re applying for, you may need different types of documentation. However, generally, this would include:

• Identification documents (SSN may not be required for foreign nationals depending on the lender)
• Proof of income (could be bank statements if self-employed or rental income cash flow for DSCR loan)
• Proof of assets 
• Credit report (may not be required for foreign individuals who don’t have a US credit report depending on the lender)
• Debt information
• Down payment verification using bank statements or gift letters
• Proof of cash reserves (may be optional depending on the requirements of the lender)
• DTI (debt-to-income ratio) if and as needed by the lender

Since each lender has different documentation requirements, keep in mind to reach out to lenders early in the process to be prepared with the correct documentation. 

If you think a non-QM loan is a good fit for you, the next step would be to start looking for a lender. During your lender search, you should take into consideration the following factors:

• Experience: Does the lender have a lot of experience handling non-QM loans? If there’s a specific loan type that you’re considering, do they have experience with that specific loan type as well?
• Reputation: When looking up online reviews of the lender, do other borrowers tend to have a positive experience or a negative experience with them?
• Customer service: Do any of the reviews mention the quality of the lender’s customer service?
• Interest rates and fees: Do the interest rates they offer fall within a reasonable range? Do they charge reasonable fees in comparison to other lenders?
• Down payment requirements: How much of a down payment does the lender require?
• Non-bank lender: Is the lender a large bank or a non-bank lender? Larger banks have stricter guidelines when it comes to loan options which can cause roadbumps. 

Applicants of non-QM loans can oftentimes have a unique background or circumstance. Choosing a lender who’s experienced and has handled many different types of non-QM transactions can make the process much smoother. On the other end of it as a borrower, you should be able to ask any questions or bring up any concerns to the lender about the process and feel confident about their answers. 

Overall, non-bank lenders or “private lenders” are a good choice for people interested in non-QM loans because of their quicker approval times and more flexible underwriting guidelines. Non-bank lenders, like us at Defy, have more specialized loan products, which means they’re far more experienced with handling non-QM loans. 

Yes! You can get a non-QM loan for an investment property. Non-QM loans are great options for real estate investors who rely on rental income as their main source of income since they can use alternative income verification methods for a non-QM loan. 

The down payment requirements will vary depending on the lender and the type of non-QM loan, but you can expect to put down anywhere between 15-30% of the purchase price. At Defy, however, we offer Bank Statement and P&L loan options with down payments as low as 10%