Non-QM loans explained: types, requirements and rates

The short answer

A non-QM (non-qualified mortgage) loan is a home loan that doesn't meet the federal "qualified mortgage" definition in Regulation Z 1026.43, usually because income is documented with bank statements, rent, assets or 1099s instead of tax returns and W-2s. As of March 2026, one non-QM lender (Defy Mortgage) lists 620 to 640 minimum credit scores, 10% to 25% down depending on the program, and 3 to 12 months of reserves, with rates that typically run higher than conventional loans.

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Key numbers

What "non-QM" means: Outside Regulation Z's qualified-mortgage definition
Typical credit score: 620-640+ (Defy Mortgage example)
Typical down payment: 10%-25%, by program
Rates: Usually higher than conventional

QM vs. non-QM: what the label means

Every lender must make a good-faith determination that you can repay a mortgage (the ability-to-repay rule in Regulation Z 1026.43). A qualified mortgage meets extra standards that give the lender legal protection, so most conventional, FHA, VA and USDA loans are designed as QMs. A non-QM loan still has to meet the ability-to-repay rule, but can verify income in other ways or include features QMs can't, such as interest-only payments. Loans for investment properties held for rent are business-purpose credit and fall outside these consumer rules altogether (Regulation Z 1026.3).

Types of non-QM loans

Program	How you qualify	Example requirements (Defy Mortgage, 2026)	Guide
DSCR	Property's rent covers the payment	640 score, 15% down, DSCR 0.75+ (investment only)	DSCR loan requirements
Bank statement	12 or 24 months of deposits	640 score, 10% down, 2 years self-employed	Bank statement loans
P&L only	CPA-prepared profit-and-loss statement	640 score, 15% down, 2 years self-employed	Self-employed mortgage options
Asset depletion	Liquid assets converted to income	640 score, 20% down, 60-month divisor	Asset depletion loans
1099 only	12 months of 1099 income	Varies; NASB lists 700 and 20% down	Self-employed / 1099
ITIN	Tax ID instead of a Social Security number	Varies; A&D Mortgage lists 660 and up to 80% CLTV	ITIN mortgage loans

Requirements are one lender's published examples, not industry rules; every non-QM lender sets its own. Defy also lists a $6 million maximum loan and says investment properties need 20% to 25% down.

Who non-QM loans fit

Self-employed borrowers whose tax returns show low income after write-offs.
Real estate investors who want to qualify on rent rather than personal income, or close in an LLC.
Retirees and high-net-worth borrowers with large assets but little W-2 income.
Borrowers without a Social Security number who file taxes with an ITIN.

The trade-offs

Price: rates and fees typically run higher than conventional loans (Defy says non-QM loans "typically carry slightly higher interest rates"). Get Loan Estimates from more than one lender.
Down payment and reserves: usually larger than conventional or FHA loans.
Prepayment penalties: common on investment-property non-QM loans; ask before you sign.
Refinance later: once you have two years of tax returns showing enough income, a conventional refinance may lower your rate.

Frequently asked questions

What is a non-QM loan?

A mortgage that doesn't meet the federal qualified-mortgage definition, usually because income is verified with bank statements, assets, rent or 1099s instead of tax returns. Lenders must still confirm you can repay.

Are non-QM loans safe?

They're legal, regulated mortgages: the lender must still verify your ability to repay. They cost more and often require more down, so compare offers and read the terms, especially prepayment penalties and interest-only periods.

What credit score do you need for a non-QM loan?

Often 620 to 640 at minimum, depending on the lender and program. Defy Mortgage lists 640 for its 2026 programs; NASB lists 700 for its 1099 loan.

How much do you need to put down on a non-QM loan?

Usually 10% to 25%. Defy Mortgage lists 10% for bank statement loans on a primary home and 20% to 25% for investment properties.

Are non-QM rates higher?

Typically yes, because the documentation is non-standard and the loans aren't sold to Fannie Mae or Freddie Mac. The gap depends on the program, your credit and your down payment.

Sources

Prepared by the MortgageInfo.us editorial team from primary sources. General education only, not financial, legal, or tax advice. How we research and fact-check.