Today, more Americans are working for themselves than ever before. While this offers freedom and flexibility, it also introduces some challenges, including qualifying for a mortgage. Traditional loans typically rely on W-2s, tax returns, and a predictable income stream, which self-employed individuals don’t have, putting them at a disadvantage.
Non-QM loans can resolve this issue for the self-employed. These flexible loan programs are designed to help self-employed buyers with non-traditional income profiles qualify for a mortgage.
This article will cover what Non-QM loans are, who they’re most suitable for, how they work, and key benefits when you’re looking to buy a home.
A non-QM mortgage is a type of home loan that doesn’t meet the standard guidelines of a qualified mortgage (QM) set by the Consumer Financial Protection Bureau (CFPB). They’re designed for borrowers who don’t fit the traditional mold, like self-employed buyers.
However, that doesn’t mean that non-QM loans are risky or unregulated. Rather, these loans simply use alternative methods to verify income and loan qualification.
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Get StartedNon-qualified mortgage loans are ideal for borrowers who earn a substantial income to afford a mortgage but don’t qualify under conventional standards. Examples of such borrowers include the following:
The flexibility of non-QM mortgages allows self-employed individuals to use their actual cash flow instead of what shows on paper after write-offs and deductions.
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There are plenty of misunderstandings surrounding non-QM mortgages. Let’s clear up these misconceptions:
Myth #1: Non-QM loans are subprime loans.
This is false. These loans are designed for creditworthy borrowers who fall outside traditional income reporting, not subprime borrowers. Further, non-QM mortgages must comply with the same Regulation Z requirements that conventional mortgages do.
Myth #2: Non-QM loans are hard to qualify for.
Actually, these loans may be easier for self-employed borrowers to qualify for, especially if they maintain strong credit, bank statements, and cash reserves.
Myth #3: Interest rates are sky-high.
Although interest rates for non-QM loans are typically higher than conventional mortgages, they’re not excessive. Interest rates vary based on a borrower’s financial and credit profile. So, those with strong credit and income may qualify for competitive rates.
Myth #4: Non-QM loans are only for bad credit borrowers.
This is untrue. Many non-QM borrowers have very good credit but need flexibility with income verification.
Non-QM mortgage loans may be more flexible than traditional home loans, but they still require responsible financial habits. Here are the general requirements of non-QM home loans:
Generally, yes, interest rates for non-QM mortgages tend to be slightly higher than conventional mortgage rates. This is because non-QM loans carry more risk for the lender, as they fall outside the strict guidelines set by the CFPB for qualified mortgages.
However, the higher interest rate may be worth it for self-employed buyers who otherwise can’t qualify for a home loan.
Get StartedWeigh the pros and cons of non-QM mortgages before applying.
Pros:
Cons:
Non-QM home loans offer flexibility for self-employed borrowers without traditional income documents, while conventional mortgages are suitable for those with employment income and strong credit. Here’s a clear side-by-side comparison of non-QM loans and conventional mortgages:
Non-QM Loans
Conventional Mortgages
A mortgage that doesn’t meet the CFPB’s “qualified mortgage” standards
A traditional mortgage that meets Fannie Mae/Freddie Mac standards
Self-employed individuals and small business owners
Salaried workers with stable income and good credit
-Bank statements
-1099s
-P&L statements
-Asset depletion
-W-2s
-Pay stubs
-Tax returns
Typically capped at 45% – 50%. Some programs have no income requirements
Typically capped at 45-50%
Higher due to increased risk for the lender
Lower for borrowers with good credit
Typically 10–20%+
As low as 3% for qualified borrowers (private mortgage insurance required for down payments less than 20%)
No, many non-QM borrowers with credit scores as low as 620 may qualify.
Instead of W-2s and tax returns, you may use bank statements, 1099s, profit & loss statements, or even asset depletion to verify income.
Yes, non-QM loans typically come with slightly higher rates due to increased lender risk, though they may still be competitive for those with strong credit or assets.
Yes, real estate investors can use non-QM products to purchase investment properties. They may also be used to buy single-family homes, townhouses, condos, and other residential properties.
Yes, you can refinance your mortgage to a conventional loan once you can document income using traditional forms or improve your credit score.
You’ll need to work with a mortgage company, like Sammamish Mortgage, that is experienced with non-QM mortgages. Sammamish Mortgage includes a team of professionals with experience in various mortgage programs, including self-employed mortgage loans.
Self-employed mortgage programs include bank statement mortgages, profit and loss mortgages, and 1099 mortgage loans.
Knowing what mortgage interest rates are at any given moment gives you the chance to act fast to secure a lower rate, potentially saving thousands over the life of your mortgage. Sammamish Mortgage offers live rates for various loan types, including fixed-rate mortgages, adjustable-rate mortgages, jumbo loans, FHA loans, and VA loans.
Our loan officers are ready and waiting to help you apply for your home loan.
Non-QM loans are valuable financing solutions for self-employed borrowers who may not fit the mold in terms of traditional mortgages. Whether you’re a freelancer, small business owner, or consultant, these mortgages allow you to use your actual earnings to qualify, not just what’s on your tax return.
If you’re looking to buy a home as a self-employed borrower in the Pacific Northwest region — including WA, OR, ID, CO, and CA — we can help. At Sammamish Mortgage, we offer various self-employed mortgage options for those without traditional employment documentation, including non-QM mortgages. Visit our website to get an instant rate quote, or get in touch with us today to have your mortgage questions answered!
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