Home / Glossary / Non-QM (Non-Qualified Mortgage)
Non-QM (Non-Qualified Mortgage)
A mortgage that doesn't meet the Consumer Financial Protection Bureau's qualified mortgage standards.
Definition
Non-Qualified Mortgages fall outside the guidelines set by the CFPB's Ability-to-Repay rule, which defines standards like debt-to-income limits and documentation requirements for "qualified" loans. Non-QM products include bank statement loans, asset depletion loans, DSCR loans, and interest-only mortgages. These loans are not inherently risky — they simply use alternative methods to verify a borrower's ability to repay. Non-QM lenders typically hold loans in portfolio or sell them to private investors rather than to Fannie Mae or Freddie Mac. Rates are generally higher than conventional loans to compensate for the added flexibility and risk.
How This Relates to DSCR Loans
DSCR loans are the most popular type of Non-QM loan for real estate investors. They qualify borrowers based on property cash flow instead of personal income.
Related Terms
DSCR (Debt Service Coverage Ratio)
A ratio that measures whether a property's rental income covers its debt payments.
Interest-Only
A loan payment structure where you pay only interest for an initial period, with no principal reduction.
Underwriting
The process by which a lender evaluates the risk of a loan application before approving it.
ARM (Adjustable Rate Mortgage)
A mortgage with an interest rate that adjusts periodically based on a market index after an initial fixed period.
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