Reference

Non-QM Mortgage Glossary

Plain-English definitions for the terms you'll encounter when exploring Non-QM mortgage programs.

1099 Income

Income reported on IRS Form 1099, typically received by independent contractors, freelancers, and self-employed individuals. Non-QM lenders can use 1099 forms to qualify borrowers without requiring W2s or tax returns.

Alternative Documentation

Any income or asset documentation method that falls outside the standard W2/tax return model used by conventional lenders. Includes bank statements, 1099s, P&L statements, and asset depletion calculations.

Asset Depletion

A qualification method that converts a borrower's liquid assets (savings, brokerage accounts, retirement accounts) into a monthly income figure by dividing the total by the remaining loan term in months.

Bank Statement Loan

A Non-QM mortgage that qualifies borrowers based on 12 or 24 months of bank deposits rather than tax returns. Designed for self-employed borrowers whose taxable income is reduced by business deductions.

Bridge Loan

A short-term loan (typically 6-24 months) used to bridge the gap between two transactions — such as purchasing a new property before selling an existing one. Asset-based and closes quickly.

CFPB

Consumer Financial Protection Bureau. The federal agency that established the Qualified Mortgage (QM) rules after the 2008 financial crisis. Non-QM loans are those that fall outside the CFPB's QM guidelines.

Conforming Loan

A traditional mortgage that meets Fannie Mae and Freddie Mac guidelines. Requires full documentation (pay stubs, tax returns) and typically stricter qualification criteria than Non-QM.

Debt Service Coverage Ratio (DSCR)

A ratio used to qualify investment property loans. Calculated as: Monthly Gross Rent / Monthly PITIA Payment. A DSCR of 1.0 means rent exactly covers the debt service. Most lenders require 1.0-1.25.

DSCR Loan

A Non-QM investment property loan that qualifies based on the rental income of the property rather than the borrower's personal income. No personal income documentation required. LLCs welcome.

Due-on-Sale Clause

A mortgage provision requiring the full loan balance to be paid if the property is sold or transferred. Relevant to investors who want to transfer a property into an LLC after closing.

EIN

Employer Identification Number. A federal tax ID assigned to businesses by the IRS. Required when closing a Non-QM loan in an LLC or other business entity.

Fix and Flip Loan

A short-term, asset-based loan for investors who purchase distressed properties, renovate them, and sell for a profit. Closes in 5-10 business days. Approval based on property value, not personal income.

Foreign National Loan

A Non-QM mortgage for non-U.S. residents purchasing U.S. investment or vacation properties. No Social Security number or U.S. credit history required. Typically requires 25-35% down.

Hard Money Loan

Short-term financing from private lenders based primarily on property value rather than borrower qualification. Higher rates/fees than Non-QM loans but faster funding for investors.

Interest-Only

A mortgage payment structure where you pay only interest for a set period (typically 5-7 years), then payments increase to include principal. Offers lower initial payments for investors.

ITIN

Individual Taxpayer Identification Number. Issued by the IRS to individuals who are required to file taxes but are not eligible for a Social Security Number. ITIN mortgage loans allow ITIN holders to purchase property without an SSN.

LLC Mortgage

A loan in the name of a Limited Liability Company (business entity) rather than an individual. Common for real estate investors managing properties through business structures.

LTC (Loan-to-Cost)

The ratio of the loan amount to the total cost of a project (purchase price plus renovation budget). Used in fix-and-flip and construction lending. Most programs cap LTC at 85-90%.

LTV (Loan-to-Value)

The ratio of the loan amount to the appraised value of the property. A $300,000 loan on a $400,000 property is 75% LTV. Non-QM programs typically allow up to 80-90% LTV depending on the program.

Non-QM Loan

Any mortgage that does not meet the CFPB's Qualified Mortgage guidelines. Non-QM loans use alternative documentation methods and serve borrowers who do not fit the conventional W2 income model.

P&L Statement Loan

A Non-QM mortgage that qualifies self-employed borrowers using a CPA-prepared profit and loss statement rather than tax returns. Useful for borrowers with complex business structures.

Personal Guarantee

A legal commitment by an individual to repay a loan if the borrowing entity (such as an LLC) defaults. Most Non-QM lenders require personal guarantees even when the loan is in a business entity's name.

PITIA

Principal, Interest, Taxes, Insurance, and Association dues. The total monthly housing payment used in DSCR calculations and debt-to-income ratios.

Portfolio Loan

A loan held by the lender in their own portfolio rather than sold on the secondary market. Offers more flexibility in qualification but typically higher rates than conforming loans.

Prepayment Penalty

A fee charged if you pay off the loan early. Some Non-QM loans include prepayment penalties (often 2-3 years) to protect lenders from early payoff risk.

Qualified Mortgage (QM)

A mortgage that meets the CFPB's specific underwriting standards, including income verification requirements, debt-to-income limits, and restrictions on certain loan features. Conventional and FHA loans are QM loans.

Recent Credit Events

Negative credit history items such as bankruptcy, foreclosure, short sale, or deed-in-lieu of foreclosure. Non-QM programs exist for borrowers with recent credit events, with waiting periods as short as 1 day after discharge.

Short-Term Rental (STR)

A rental property rented on a short-term basis through platforms like Airbnb or VRBO. Many DSCR lenders accept STR income, often using a market rent analysis or the property's actual STR revenue history.

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