Poised to make up some 20% of the 2025 market, a category known as Non-QM loans are taking center stage and rightfully so. They offer the flexibility to consider alternative income sources, asset-based qualifications, and even property-centric approaches like DSCR (Debt Service Coverage Ratio) for real estate investors.
We can now say yes to self-employed 1099 individuals, real estate investors, and high-net-worth clients whose qualifying criteria don’t fit the traditional “QM” (Qualified Mortgage) box.
What is a Non-QM Mortgage?
Definition: A mortgage loan that does not meet the standard lending criteria established by the Consumer Financial Protection Bureau (CFPB) under the ability to Repay (ATR) and Qualified Mortgage (QM) rules. Loans designed for borrowers who may have unique financial situations that prevent them from qualifying for a traditional mortgage.
More Yes in 2025
We can now say yes to self-employed 1099 individuals, real estate investors, and high-net-worth clients whose qualifying criteria don’t fit the traditional “QM” (Qualified Mortgage) box. Ask our team before you assume you won’t qualify or worse yet, you’ve been told no by a lender who simply didn’t have the right loan product.
Not to be Confused: Non-QM is NOT Subprime
It’s important to understand that Non-QM loans are not the same as the risky loans that contributed to the housing crisis years ago. These are mainstream investor-backed products from well-known institutions like Morgan Stanley, Goldman Sachs, and JP Morgan. They are simply designed to address the needs of borrowers who fall outside the narrow confines of QM guidelines.
Here are a few examples of Non-QM clearly not high risk loans
1099 Loans
Perfect for self-employed borrowers and contractors with fluctuating incomes who now qualify based on 12 months of 1099 income, rather than relying on tax returns or the restrictive 2-year history requirement of traditional loans.
Key Features:
- Ideal for self-employed buyers
- Calculates income from 1099 not tax return – 2 years, same line of work
- Significantly enhances qualifying reflecting actual income – 12 or 24 months used
- Minimum credit score – 620
- Loan amounts from $125K to $4M
- Max LTV 90%
- Occupancy types allowed – Primary Residence, Second Home, Investment
- Property types allowed – 1-4 Units, Condo’s, Non-Warrantable Condo’s, PUD’s, Modular, Agricultural
- Loan product options – Fixed, ARM’s, and I/O; Pre-payment penalties optional
- Expense ratio as low 10%
- Maximum number of financed properties, 20
Bank Statement Loans
Ideal for business owners and entrepreneurs whose personal income may not fully reflect their financial strength. We can use 12-24 months of bank statements to qualify them, capturing their true earning potential versus their tax reported income post deductions.
Key Features:
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- Ideal for high-net-worth buyers who shelter income
- Qualify with 12 or 24 months personal or business bank statements
- Requires same line of work 2+ years
- 18 months with 3 years prior experience in the same line of business
- Min credit score 620
- Loan amounts from $125K to $4M
- Max LTV 90%
- Occupancy Types – Primary Residence, Second Homes, Investment Properties
- Property Types – 1-4 Units, Condo’s, Non-Warrantable Condo’s, PUD’s, Modular, Agricultural
- Expense ratio as low as 15%
- Maximum number of financed properties, 20
Investor Loans
DSCR short for Debt Service Coverage ratio is a streamlined financing solution for purchasing investment property. Qualifying is based on the property’s ability to generate income, not on the borrowers. In fact, the section for borrower income on the application is left blank. Credit score does factor in to qualifying.
DSCR loans support a wide variety of property types from the standard single family home to non-warrantable condos and properties held in LLCs. Perfect for first-time landlords requiring no previous experience and the seasoned investors supporting up to 20 properties.
Contrast this with traditional investor financing that tops out at 10 properties and requires borrower income data. By the way, Debt Service Coverage Ratio is quite literally how qualifying is calculated.
Key Features:
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- Required minimum DSCR ratios range from .75% to 1.25%
- Allows established short term rental Income for qualifying
- No landlord history required (2 years on conventional). Must own a primary residence
- Minimum credit score – 640
- Loan amounts from $125K to $3,000,000
- Max LTV 80% (20% down payment)
- Occupancy types – investment property ONLY
- Property types – 1-4 units, condos, non-warrantable condos, rural/agricultural properties, Condotels
- Max financed properties – 20
Experience Matters
At Fairway, our in-house team of experienced underwriters versed in the nuances of these loans allows a single application to be compared to the guidelines across the entire suite of offerings. Best match and best price wins and you’re pre-approved!
The expertise to efficiently pull these off is why they aren’t more prevalent. In a word, they’re a bit of a beast.
Now that you know what exists and how to tap into new resources, make 2025 the year you purchase your first home, buy an investment property, or refinance out of some higher interest debt obtained when starting that new business.
