What Is a Non-QM Loan?

Short answer

A non-QM loan is a mortgage that does not fit the federal Qualified Mortgage (QM) definition under the Ability-to-Repay rule, usually because income is documented with bank statements, rental income (DSCR), assets or a 1099 instead of tax returns and W-2s. It is not a subprime loan: non-QM borrowers often have strong credit and large down payments but income that tax returns understate. In Miami, where a large share of buyers are self-employed, investors or foreign nationals, non-QM is a major part of the market.

Definition

Non-QM (non-qualified mortgage) loans are made by lenders who verify ability to repay in ways other than the standard agency method. They are held in portfolio or sold to private investors, and priced for the added flexibility.

Worked example

A Doral business owner shows $70,000 of taxable income after write-offs, but her business deposits over 12 months total $420,000. A conventional lender qualifies her on $70,000 / 12 = $5,833 a month, which supports a small loan. A non-QM bank statement lender applies a 50% expense factor to the deposits: $420,000 x 0.50 = $210,000 a year, or $17,500 a month. On a 43% DTI that supports a total payment of about $7,525 instead of about $2,508, roughly three times the buying power. Expense factors vary by lender and industry.

Common non-QM programs

• Bank statement loans: 12 or 24 months of deposits replace tax returns.
• DSCR loans: investment property qualifies on rent.
• Profit and loss loans and 1099 or WVOE loans: alternative income documentation.
• Foreign national and ITIN loans: for buyers without U.S. credit or a Social Security number.
• Asset depletion: qualifying income derived from liquid assets.
• Interest-only and 40-year terms, which QM rules do not allow.

What to expect

Non-QM usually means a larger down payment, a higher rate than conforming, and sometimes a prepayment penalty on investment loans. Underwriting is manual and common sense, and closings can be as fast as conventional. Rates vary daily; call for today's pricing.

In South Florida

South Florida is one of the largest non-QM markets in the country: self-employed professionals, real estate investors buying condos for rent, foreign nationals from Latin America and Europe, and buyers of non-warrantable condos and condotels that agencies will not finance. Non-QM lenders are also more flexible on recent credit events and on properties with open permits or short-term rental use. Pricing is higher than conforming and varies a lot by lender, which is why shopping through a broker matters here more than anywhere.