Non-QM loans are aimed at borrowers with financial profiles that don’t meet the requirements of a typical qualified mortgage. This often involves an inconsistent or nontraditional income structure, a major credit event or high debt.

Features associated with non-QM loans include:

  • Alternative income documentation. Depending on the lender’s requirements, borrowers may demonstrate their ability to repay the loan using tax returns, bank statements, asset qualifiers or 1099s.
  • No waiting period after bankruptcy. Some lenders offer non-QM loans that cater to borrowers with a history of bankruptcy or foreclosure, allowing them to get a mortgage as soon as one day after the event. Comparatively, qualified mortgages may require a waiting period of one to four years after bankruptcy, and two to seven years after a foreclosure.
  • Higher debt limits. Qualified mortgages have a maximum debt-to-income ratio (the percentage of your income that goes toward monthly debt payments) of 43%, while some non-QM loans allow for ratios over 50%.
  • Higher down payment requirements. Non-QM loan borrowers may be required to put a minimum down payment of 15% to 20%. Meanwhile, the average down payment was 6% for first-time home buyers and 17% for repeat buyers in 2022, according to the National Association of Realtors.
  • Higher interest rates. Non-QM loans typically have higher interest rates than qualified mortgages. So, while it may be easier to meet their requirements than a qualified mortgage, non-QM loans are also a more expensive way to borrow.