Non-QM Mortgage Glossary

Non-QM (Non-Qualified Mortgage)

A mortgage that does not meet the Consumer Financial Protection Bureau's (CFPB) Qualified Mortgage (QM) standards. Non-QM loans use alternative documentation methods, may exceed standard DTI limits, or have features like interest-only payments. They are not inherently risky — they simply serve borrowers whose financial situations don't fit the conventional lending box.

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DSCR (Debt Service Coverage Ratio)

A ratio that measures whether a property's rental income is sufficient to cover its mortgage payment. Calculated as: Monthly Rental Income ÷ Monthly Mortgage Payment (PITIA). A DSCR of 1.0 means the rent exactly covers the payment. Most lenders require a minimum DSCR of 0.75-1.25. DSCR loans are the most popular Non-QM product for real estate investors because they qualify the property — not the borrower's personal income.

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Bank Statement Loan

A Non-QM mortgage that uses 12-24 months of personal or business bank statements to verify income, instead of tax returns, W-2s, or pay stubs. Designed for self-employed borrowers, business owners, and freelancers whose tax deductions reduce their taxable income below what they actually earn. The lender calculates qualifying income based on average monthly deposits.

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Asset Depletion (Asset Qualifier) Loan

A Non-QM loan that converts a borrower's liquid assets into qualifying income. The formula typically divides total eligible assets by a set number of months (e.g., 360 for a 30-year term) to derive a monthly "income" figure. Ideal for retirees, trust fund beneficiaries, and high-net-worth individuals who have substantial savings but low documented income.

LTV (Loan-to-Value Ratio)

The ratio of the loan amount to the appraised value of the property. Calculated as: Loan Amount ÷ Property Value × 100. An 80% LTV means the borrower is putting 20% down. Non-QM loans typically allow maximum LTVs between 75-90%, depending on the product, credit score, and property type. Lower LTV generally means better rates and more program options.

DTI (Debt-to-Income Ratio)

The percentage of a borrower's gross monthly income that goes toward debt payments. Calculated as: Total Monthly Debt Payments ÷ Gross Monthly Income × 100. Qualified Mortgages typically cap DTI at 43%. Non-QM loans may allow higher DTIs (up to 50-55%) or, in the case of DSCR loans, don't consider personal DTI at all.

Foreign National Mortgage

A Non-QM loan product for non-US citizens who want to purchase property in the United States. Foreign national borrowers typically don't have a Social Security Number, US credit history, or US-based income. These programs usually require 25-30% down payment, 12 months of bank statements from any country, and a valid passport. Some lenders use international credit reports.

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P&L (Profit & Loss) Loan

A Non-QM mortgage that uses a CPA-prepared Profit & Loss statement to verify income instead of tax returns. The P&L statement must typically cover the most recent 12-24 months and be prepared or audited by a licensed CPA. Popular with business owners who have complex finances or recently started a business and don't yet have 2 years of tax returns.

1099 Loan (1099 Income Loan)

A Non-QM mortgage that qualifies borrowers based on their 1099 income statements rather than tax returns. Borrowers provide 1-2 years of 1099 forms from clients or employers to demonstrate income. Designed for independent contractors, gig economy workers, and freelancers who receive 1099-MISC or 1099-NEC forms instead of W-2s.