Non-QM Loans
We offer a wide range of alternative lending products that cater to all types of home buyers. Learn more about our alternative lending solutions today.
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KEY TAKEAWAYS
- Non-qualified (non-QM) mortgages describe a variety of loan types that don’t meet traditional mortgage requirements set by the Consumer Financial Protection Bureau (CFPB).
- Non-QM loans offer a pathway to homeownership for certain borrowers — such as business owners, investors, and retirees — who may not qualify for a traditional mortgage due to irregular income or significant tax write-offs.
- While non-QM loans offer more flexibility when it comes to underwriting, they often come with higher interest rates compared to conventional loans.
Griffin Funding offers a diverse range of non-QM mortgage products that allow you to qualify using better representations of your reliability as a borrower. Such representations may include bank statements, rental income, your liquid assets, or your credit history.
Whether you are a new or experienced real estate investor or a hopeful first-time home buyer, non-QM mortgage products can help you finance your purchase, without having to jump through unnecessary hoops.
Non-QM Mortgage Products
What Are Non-QM Loans?
Non-qualified mortgages describe various types of loans that don’t conform to lending requirements outlined by the Consumer Financial Protection Bureau (CFPB). However, just because these loan types aren’t “qualified” doesn’t mean they present a high level of risk to borrowers — in fact, they open up a path to homeownership and real estate investment opportunities to a broader range of buyers. Below, we go into more detail about what non-QM loans are and how they differ from qualified mortgage loans.
What Is a Non-QM Loan?
A non-QM loan, or a non-qualified mortgage, is a type of mortgage loan that allows you to qualify based on alternative methods, instead of the traditional income verification required for most loans. For instance, certain non-QM loans allow borrowers to use bank statements or assets as income rather than pay stubs or W-2s.
Because of the more flexible qualification requirements, non-QM loans make it easier for a wider range of borrowers to access home financing. This flexibility has become more and more important as the gig economy has grown and self-employment rates rise. Freelancing hit an all-time high in 2023, with 64 million Americans — or 38% of the workforce — doing some type of freelancing. Non-QM loans can help cater to the rising self-employed population, many of whom may not qualify for a conventional mortgage.
In addition to increasing access to home financing, non-QM loans tend to be more flexible in how they can be used. Borrowers can typically use non-QM loans not just to purchase a primary residence, but also to buy investment properties or vacation homes.
Non-QM vs. Qualified Mortgage
Non-QM loans are an alternative to qualified mortgage (QM) loans. More specifically, a non-QM loan is one that is not required to meet the Consumer Financial Protection Bureau’s (CFPB) guidelines for qualified mortgages.
Qualified Mortgage Requirements
The CFPB has established a set of rules for QM loans to provide more stable borrowing requirements. These are meant to protect borrowers from entering loan agreements that they cannot afford to repay.
These stricter regulations were established in 2014 in response to the Great Recession that lasted from 2007 to 2009, during which many borrowers defaulted on their subprime mortgages and were forced into foreclosure. This not only had a long-lasting effect on the economy, but damaged many individuals’ credit.
In order to be considered a qualified mortgage, a loan must have certain protections in place and lack certain features. Some of the key qualified mortgage requirements include:
- The “ability-to-repay” rule: Under the ability-to-repay rule, lenders must make a good-faith and reasonable effort to determine whether a borrower can afford to repay the loan. More specifically, this means a lender must inquire about and document a borrower’s income, assets, employment status, credit score, and monthly debts and expenses.
- Certain loan features are prohibited: No negative amortization, interest-only, or balloon loans are permitted.
- Limits on loan price and term: In order to be a qualified mortgage, a loan must not exceed an APR threshold that varies depending on the type and size of the loan. Additionally, the loan term cannot exceed 30 years.
- Limits on points and fees: The points and fees for a qualified mortgage exceeding $100,000 must end up being 3% or less of the total loan amount. The threshold for points and fees varies for smaller loan amounts.
QM loans are defined as conventional loans backed by Fannie Mae and Freddie Mac, as well as government-backed loans such as VA loans, FHA loans, and USDA loans.
These restrictive requirements have made it more difficult to qualify for a mortgage, especially if you don’t have a job that provides you with a W-2, your income is seasonal, or you have significant assets but no steady income. If you do not meet the conditions required to prove your ability to repay, you will likely miss out on the investment opportunity or the house of your dreams.
Since many first-time borrowers are only aware of QM loans, it can seem like investing or becoming a first-time buyer is an impossible feat. However, that isn’t the case. Non-QM loans are a credible and viable option for many borrowers.
Who Should Consider a Non-QM Mortgage?
If you have been denied for a traditional QM loan, a non-QM loan may be your next step. You might also want to consider a non-QM loan if you have good reason to believe you will not qualify for a QM loan solely based on your credit, income, or other factors. For those who are still unsure whether this might be the right financing solution, let’s further break down the most common types of non-QM loan borrowers.
“Non-QM loans are great for people who write too much off on their taxes or people who own too many properties to qualify for additional conventional loans. Non-QM skirts both of those roadblocks and also serves as a good option for retired people who have a lot of liquid assets but don’t necessarily have documentable income.”
Guy Troxler, a Senior Loan Officer at Griffin Funding with 7 years of experience as an LO in the mortgage industry.
Non-QM mortgages are typically recommended for:
- Self-employed individuals
- Real estate investors
- Retirees interested in purchasing a second home that will not be their primary residence
- Small to midsize business owners
- Borrowers looking for interest-only payments or more flexible DSCR requirements
- “Subprime” or “Non-Prime” borrowers who just barely miss the requirements for a QM loan and don’t want to postpone buying
- Those who have had a recent credit event (bankruptcy, short sale, or foreclosure)
If you fall into one of these categories, you should consult one of our knowledgeable loan officers who can help you determine if a non-QM mortgage is the right solution for you.
Pros and Cons of Non-QM Loans
While non-QM mortgages are not held to the same restrictions as qualified mortgage loans, it does not mean that borrowers are putting themselves in an; especially risky position. There are checks and balances in place to protect both the buyer and the lender. As with any loan, there are both benefits and risks associated with non-QM lending.
Pros |
|---|
| Flexible underwriting |
| No personal income required |
| Job history isn’t always required |
| Qualify with as little as 10% down |
| No reserves required (in some cases) |
| Credit scores as low as 580 considered |
| Low or negative DSCR can be considered |
Cons |
|---|
| Less safeguards in place for borrowers |
| Potential for higher interest rates |
| Higher down payment requirements |
| Not offered by every lender |
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Non-QM Mortgage Benefits
- Greater underwriting flexibility
- No personal income calculations are required
- No job history is required (in some cases)
- Qualify with as little as 10% down
- No reserves required (in some cases)
- Credit scores as low as 620 allowed (580 with compensating factors)
- Low debt service coverage ratio (DSCR) on investment properties
- Counting rental income (including Airbnb & VRBO)
For many potential homeowners and real estate investors, non-QM loans are the only way to make investment opportunities plausible.
“Certain people are good candidates for non-QM loans but aren’t familiar with them. I get real estate investors who are used to using hard money because it’s easy and they’re not familiar with the DSCR loan, which can offer a better rate when compared to hard money and save investors quite a bit in the long run.”
Guy Troxler, a Senior Loan Officer at Griffin Funding with 7 years of experience as an LO in the mortgage industry.
Non-QM Mortgage Risks
Before applying for a non-QM loan, you should consider the types of risks you may face with this type of financing. Some of these risks include:
- Less safeguards in place to protect against default
- Potential for higher interest rates
- May require a larger down payment compared to other loan types
- Not offered by every lender
By maintaining reasonable lending standards while preserving flexibility, non-qualified mortgage lenders offer a middle ground for borrowers who would otherwise have no options or be saddled with unreasonably high interest rates that drastically increase the cost of borrowing.
Think you qualify for a loan? Contact us today to find out!
Contact UsNon-QM Loan Types
To meet the needs of diverse borrowers, we offer a broad spectrum of non-QM loan products:
DSCR Loans
Private and hard money loans often have high rates and short loan terms, which isn’t always ideal for real estate investors. Alternatively, both new and experienced real estate investors can benefit from the expanded criteria offered by debt service coverage ratio (DSCR) loans. DSCR loans allow investors to qualify for financing using the rental income of a property and does not take into account your personal income.
Bank Statement Loans
Bank statement loans allow self-employed borrowers and those with alternative income streams to qualify for a mortgage using bank statements. Borrowers can qualify with as little as twelve months’ worth of bank statements. This loan is often a good solution for self-employed borrowers, business owners, realtors, consultants, and entrepreneurs. P&L loans are also an option for certain borrowers.
Bank Statement Home Equity Loans
Bank statement home equity loans (HELOANs) allow self-employed borrowers to qualify for a second mortgage using bank statement deposits rather than tax returns. Borrowers can qualify to pull equity out of their home with as little as twelve months’ bank statements. This loan is often a good solution for self-employed borrowers, business owners, realtors, consultants, and entrepreneurs who don’t want to refinance their first mortgage but want to tap their equity. Bank statement HELOANs are another way self-employed homeowners can pull cash out of their property.
1099 Loans
A 1099 mortgage loan allows borrowers who receive 1099 income to qualify for a home loan based on their 1099 statements rather than traditional tax returns. With this type of loan, eligible homebuyers can use 90-100% of the income reported on their 1099 forms, similar to how W2 employees qualify using their W2 income. This approach is often more advantageous than relying on tax returns, as 1099 borrowers typically don’t have a W2 and may write off expenses on their tax filings, reducing their taxable income but not their actual earnings.
Asset-Based Loans
Asset-based loans allow you to leverage assets you already have, including checking and savings accounts, investment accounts, or money market accounts, to secure a loan. This type of non-QM mortgage is ideal for individuals with substantial liquid assets available. Griffin Funding does not require you to pledge your assets.
Jumbo Loans with 10% Down
While traditional jumbo loans still often require 20% down, we offer near-miss jumbo loans of up to $3 million with as little as 10% down, up to a 43% debt-to-income ratio, and credit scores as low as 680. Jumbo loans with 10% down are often the ideal solution for first-time buyers who might still have large student loans and other types of “good credit debt”. 10% down jumbo loans are also good for high-income earners who are looking to invest their cash in other assets.
Foreign National Loans (ITIN)
If you do not have a valid Social Security number, U.S. FICO score, or Individual Tax Identification Number (ITIN) you can still qualify for this type of non-QM loan. To qualify, you will need to provide a visa or visa waiver as well as three active and open trade lines with a two-year history.
Interest-Only Home Loans
We offer interest-only home loans on 40-year fixed loans, 30-year fixed loans, as well as 7-year, 5-year, 1-year, and 6-month ARMs. You will only pay the interest during the first 10 years of the loan. This can provide significant savings over the life of the loan. However, it’s important to keep in mind that you will not be paying down the principal balance during the interest-only period.
Recent Credit Event Loans
Recent credit events can make it challenging to secure a loan because many lenders view them as a red flag. However, we offer loan programs for borrowers with recent credit events including foreclosure, short sale, and bankruptcy. While we do offer options for as little as one day out from the credit event, loan terms typically improve the longer it has been, even in just a year or two.
Commercial Small Balance Multifamily Rental Property Loans
We offer a variety of loans specifically tailored to the needs of real estate investors who want to expand their portfolio into multifamily 5 to 10 unit properties. Our loans are designed to make the process easier for buy-and-hold investors.
Temporary Buydown Mortgages
A temporary buydown mortgage is a type of home loan that starts out with a relatively low rate, which increases every year until the full monthly payment amount is reached. Although your interest rate changes throughout the life of the loan, it’s considered a fixed-rate mortgage because your amortization schedule is set from the beginning. A temporary buydown loan can be a good option if you want to benefit from lower mortgage payments for the first few years of owning your home.
The availability of certain non-QM loans varies by state. Visit each loan’s respective page to learn more about where it’s offered or reach out to Griffin Funding and see if the loan you want is available in your state.
Think you qualify for a loan? Contact us today to find out!
Apply NowApplying for a Non-QM Mortgage
The process for securing a non-QM mortgage is fairly straightforward and can be completed in 10 easy steps:
How to Apply for a Non-QM Loan
Step 1: First, the loan officer will assess your situation and propose the loan options (and the rates) that are available for your circumstances.
Step 2: Complete the loan application over the phone or through our secure online platform.
Step 3: Lock in your rate over the phone based on the agreed-upon terms.
Step 4: We will send the initial application and disclosures which you will need to then review and e-sign.
Step 5: Return the requested supporting documentation.
Step 6: Your paperwork will be submitted to underwriting.
Step 7: The appraisal of the property and a termite inspection (if applicable) need to be performed.
Step 8: Once the loan is approved, we will request any additional information to finalize the documentation.
Step 9: You will review your Closing Disclosure/settlement statement with your loan officer and then you can have it signed by a notary.
Step 10: Once everything is complete, your loan will be funded and you’re ready to move forward with purchasing or refinancing your property.
We understand that you are likely on a tight deadline and we are dedicated to providing a swift loan approval process. Our experienced loan officers will help you move through the process as smoothly as possible.
Choosing a Trusted Non-QM Mortgage Lender
Not all non-qualified mortgage lenders are the same. In fact, some offer much better terms than others. When you’re making such a large investment and signing legally binding contracts, you do not want to take your decision lightly.
To enter into a non-QM loan with confidence, choosing a non-QM mortgage lender that has your best interests in mind is important. Not only that, but you need a lender who is easy to work with and will be mindful of the time-sensitive nature of real estate loans.
Griffin Funding is that lender. We take pride in being able to offer our clients flexible loans that work for your interests, not against them. In addition to our favorable loan terms, we utilize the most advanced technology to streamline the process, offer highly competitive mortgage rates, and prioritize our customers’ experience above all else.
“One of the biggest things that sets us apart from other lenders is the personalized service we provide. We take time to understand each client’s specific needs and their financial goals and their challenges. That understanding and personalization carries through not only the initial transaction, but into the future as well.”
Colby Freer, a Senior Mortgage Consultant with 10 years of experience at Griffin Funding.
Apply for Your Non-QM Loan
At Griffin Funding, we make it possible to secure the loan you need to buy a house or property you have your eye on without all the stress, frustration, and red tape that often accompanies the mortgage process. We provide borrowers with a streamlined application process, excellent customer service, and tools like the Griffin Gold app, which allows users to manage their finances, compare financing options, privately search for homes, and much more.
Speak with a Griffin Funding loan officer today to begin the application process for your non-QM loan.
Frequently Asked Questions
Non-QM loans don’t require traditional underwriting requirements like W-2s and pay stubs to verify your income. While there’s no longer a no-doc mortgage program available for homeowners, non-QM loans are relatively low-doc.
A few basic types of documentation you may need to get approved for a home loan include the following:
- Bank statements: Bank statements are crucial documents for non-QM mortgage loans because they help underwriters verify your income and determine whether you have the ability to repay the loan. Lenders may ask for these documents with conventional loans as well, but they’re most important for non-QM loans like bank statement loans and asset-based loans.
- Rental agreement: Rental agreements for DSCR non-QM loans verify the gross rental income you are receiving. If you do not have a rental agreement, the appraiser will provide a monthly rental income based on rental comparables in the area on form 1007.
- Proof of assets: Asset-based loans allow you to use liquid assets as income to qualify for a mortgage loan, so you’ll need to provide proof of those assets, including retirement, investment, and bank accounts.
The exact type of documentation you’ll need depends on the loan. For instance, one of the key differences between DSCR vs. conventional loans is the type of documentation required to determine a borrower’s ability to repay. DSCR loans are for investment properties and determine whether the rental income can cover the total cost of the mortgage, so there’s no income verification, but you’ll have to provide information regarding the rental income of a particular property.
Non-QM mortgage products may be more expensive than other types of home loans. Since they’re not backed by Fannie Mae or Freddie Mac and can’t be sold on the secondary mortgage market, they’re riskier investments for non-QM mortgage lenders.
To mitigate this risk, lenders typically require higher minimum down payment amounts and interest rates that can make these loans more expensive than traditional home loans.
However, because of their more flexible lending criteria, non-QM loans may still be more attractive for self-employed first-time buyers, repeat buyers, real estate investors, and more.
Non-QM mortgage payments are calculated the exact same way as regular mortgages. The only difference is the underwriting process which determines a borrower’s ability to repay using alternative documentation like bank statements instead of pay stubs.
Like all home loans, non-QM mortgage payments are calculated based on principal, interest, taxes, and insurance (PITI).
- Principal: The principal is the amount of the payment that’s dedicated to repaying the principal balance.
- Interest: Interest is the mortgage rate you receive when you apply for the loan. Bad credit can result in higher interest rates, which typically results in higher monthly payments and a greater cost over the life of the loan.
- Taxes: Taxes refer to real estate and property taxes assessed by local government agencies. They’re calculated each year and can be paid as part of your mortgage.
- Insurance: Property insurance payments are rolled into your mortgage payment. Non-QM loans do not require PMI.
Hard money loans are designed for investment properties, while non-QM loans are for residential and investment properties. Hard money loans typically require higher down payments than many types of non-QM loans and tend to have exceptionally short loan terms.
Private mortgage insurance (PMI) is only required for conventional mortgages backed by Fannie Mae and Freddie Mac. Instead, for non-QM loans, your lender will have their own requirements in place to help them reduce their risk when borrowers make low down payments.
You can purchase a residential or investment property with non-QM loans, including:
- Primary and secondary residences
- Vacation homes
- Investment properties
- Single-family homes
- Multi-family homes
- Townhomes & condos
- Manufactured homes
Note that eligible properties may vary depending on the type of non-QM loan you use. For example, DSCR loans can only be used to purchase income-generating properties and cannot be used to buy a primary residence.