I get it, traditional bank loans can be great if you fit into their narrow little box. But what if you don’t? What if you’re self-employed, have irregular income, or just don’t check all the boxes for a conventional mortgage? That’s where non-QM loans come in.
I’m Gary Parker, a real estate investor, and I help Utah homeowners get the funding they need even when the banks say no.
Whether you’ve got bad credit, lost your job, or are going through a divorce, I can help. Let’s dive into what non-QM loans are, why they matter, and how they might be the right solution for you.
What Is a Non-QM Loan?
A non-QM loan (short for non-qualified mortgage) is a type of home loan that doesn’t meet the strict guidelines set by the Consumer Financial Protection Bureau (CFPB) for “qualified mortgages.” In other words, it’s designed for individuals who may not qualify for other mortgage loans due to income structure, credit history, or other financial factors.
4 Ways Non-QM Loans Are Different from Traditional Loans
1- Unlike traditional loans that require W-2s and pay stubs, non-QM loans allow for alternative income verification like bank statements or asset-based income.
2- Qualified mortgage rules typically cap DTI at 43%. Non-QM loans may allow for a higher DTI.
3- Non-QM lenders often work with borrowers who have lower credit scores or past financial hardships.
4- Qualified mortgage requirements mandate a maximum loan term of 30 years. Non-QM loans may offer different term structures.
5 Groups Who Benefits from Non-QM Loans
1- Self-employed individuals with irregular income.
2- Real estate investors looking for financing without standard income verification.
3- Retirees with significant assets but limited monthly income.
4- Borrowers with past credit issues like bankruptcy or foreclosure.
5- People who don’t meet the qualified mortgage DTI limits.
Pros and Cons of Non-QM Loans
4 Pros:
- More flexible underwriting criteria.
- Allows alternative income verification methods.
- Can accommodate higher DTI ratios.
- Available to borrowers with lower credit scores.
3 Cons:
- Higher interest rates compared to traditional mortgages.
- Larger down payment requirements in some cases.
- Fewer lenders offer them compared to conventional loans.
Here’s an expanded version of your section with greater clarity and actionable insights:
Top Non-QM Loan Types
Understanding the different types of non-QM loans can help you choose the right one based on your financial situation and goals. Here’s a breakdown of the most common options:
Bank Statement Loans
If you’re self-employed, a business owner, or work on commission, proving your income through tax returns can be a nightmare. Traditional lenders may reject you even if you have strong earnings. Bank statement loans solve this problem by using your bank deposits instead of tax returns or W-2s to verify income. Lenders typically look at 12 to 24 months of bank statements to assess your cash flow.
Note: Best for self-employed individuals, freelancers, and entrepreneurs who don’t have traditional pay stubs but maintain strong bank balances.
Asset-Based Loans
If you have significant savings, stocks, or other valuable assets but little to no regular income, asset-based loans allow you to qualify based on your net worth rather than your paycheck. Lenders calculate your loan eligibility based on the total value of your assets, making it ideal for retirees, high-net-worth individuals, or those with fluctuating income streams.
Note: Ideal for retirees, investors, or anyone with substantial assets but irregular income.
DSCR (Debt-Service Coverage Ratio) Loans
Real estate investors love DSCR loans because they focus on property cash flow rather than personal income. Instead of requiring pay stubs, lenders check whether the rental income from the property covers the mortgage and expenses. If the property’s income-to-debt ratio meets the lender’s criteria, you qualify—no personal income verification required.
Note: Great for real estate investors looking to scale their rental property portfolio without traditional income proof.
Interest-Only Loans
With interest-only loans, you only pay the interest portion of your mortgage for a set period—typically 5 to 10 years. This lowers your monthly payments significantly, giving you more flexibility. However, once the interest-only period ends, you’ll need to start repaying the principal, which increases your payment amount.
Note: Best for borrowers needing short-term payment relief, investors looking to maximize cash flow, or those expecting a significant income increase before principal payments begin.
Recent Credit Event Loans
Life happens, job loss, medical emergencies, or unexpected financial downturns can lead to bankruptcy or foreclosure. Most traditional lenders will shut the door on you for years after a credit event. Recent credit event loans provide a way back into homeownership or investment properties, often requiring a larger down payment or higher interest rate to offset the risk.
Note: Good for folks who are recovering from bankruptcy, foreclosure, or major credit issues who still have income or assets to qualify.
Each of these loans serves a unique purpose. The key is knowing your financial strengths; whether it’s steady cash flow, strong assets, rental income, or long-term planning, so you can pick the right option. If you’re unsure which one fits your situation, reach out to me, Gary Parker, for a free consultation, and I’ll walk you through the best strategy to secure funding.
FAQs
Are Non-QM Loans Safe?
Yes, as long as they’re used properly. They are designed to help people who don’t fit into traditional lending models but still have the financial ability to repay their mortgage.
Is a Non-QM Loan a Conventional Loan?
No. While non-QM loans share some similarities with conventional loans, they don’t conform to qualified mortgage rules.
What Are the Requirements for a Non-QM Loan?
Requirements vary by lender, but typically include alternative income verification, a larger down payment, and a willingness to accept higher interest rates.
Need a Non-QM Loan in Utah? Let’s Talk.
If you’ve been turned down by the banks but still need a loan, I can help. As a real estate investor, I provide non-QM investor loans secured to your property. Whether you have bad credit, inconsistent income, or other financial obstacles, I can structure a loan that works for you. Contact me here, Gary Parker, today for a free quote.