Programme
Non-QM Loans
Loans written outside the Qualified Mortgage definition, and therefore outside its protections.
"Non-QM" is not a product. It is a legal category: any closed-end residential mortgage that does not meet the Qualified Mortgage definition in Regulation Z. Bank statement loans, asset-depletion loans, interest-only loans and loans with debt ratios above the general standard all land in it. The category exists for good reasons and it serves borrowers a rigid rulebook would turn away. What it costs you is specific and worth naming, because most marketing for these loans describes them only as flexible.
- Outside 12 CFR 1026.43(e)
- Ability to repay still applies
- No QM presumption of compliance
- Features a QM cannot have
Floor four
What it gives you
It serves borrowers the standard rulebook cannot
A retiree with substantial assets and little income, a foreign national, a self-employed borrower with legitimate write-offs, an investor past the agency property cap, someone two years past a bankruptcy — all are creditworthy and all fail a rigid test. Non-QM is where the file gets read as a whole.
Assets can be used as income
Asset-depletion programmes convert a documented portfolio into a qualifying income figure over a defined period. It is a rational way to underwrite someone whose wealth is real but whose income statement is not.
Structures a QM cannot contain are available
Interest-only periods, terms beyond thirty years and debt ratios above the general standard are all off the menu for a Qualified Mortgage. Where one of them is genuinely the right structure, this is the only place to find it.
Recent credit events are read in context
Agency guidelines apply fixed waiting periods after a bankruptcy, foreclosure or short sale. Non-QM programmes typically shorten them and price for the risk, which is a real option for a borrower whose circumstances have genuinely changed.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
You give up the safe harbour, and it is worth understanding what that is
Every closed-end mortgage requires the lender to make a reasonable and good-faith determination that you can repay it. A Qualified Mortgage that is not higher-priced gets a safe harbour — the determination is conclusively presumed compliant. A higher-priced QM gets a rebuttable presumption. A Non-QM gets neither. The lender's obligation is unchanged; what disappears is the legal presumption that it was met. That difference is priced into the loan, and it is the substance behind the word 'flexible'.
- Trade-off 02
It costs more, and the pricing is not a negotiation
The investor pool for non-QM paper is smaller, more expensive and quicker to withdraw when credit conditions tighten. That shows up as a higher rate, a larger down payment and heavier reserve requirements. Where a conventional or government loan will do the job, it is the cheaper answer and it is worth exhausting first.
- Trade-off 03
Some of the features are the risk, not the benefit
An interest-only period means the balance does not fall, so you are exposed to any decline in value and face a payment step-up when the period ends. A term beyond thirty years lowers the payment by stretching the interest. A debt ratio above the general standard means less room when something goes wrong. Each of these is excluded from the QM definition because it makes default more likely — the exclusion is the warning.
- Trade-off 04
The programme you qualify for today may not exist next quarter
Non-QM guidelines belong to private investors and change with their appetite. Programmes get withdrawn mid-application, and the refinance option you were counting on may not be there when you want it. Do not build a plan on being able to refinance out of the structure later.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| Definition | A Non-QM loan is any closed-end residential mortgage that does not meet the Qualified Mortgage definition in Regulation Z. | 12 CFR 1026.43(e) |
| Ability to repay still applies | The lender must make a reasonable and good-faith determination that the consumer can repay, on every closed-end dwelling-secured consumer loan, QM or not. | 12 CFR 1026.43(c) |
| What you lose | The presumption of compliance. A Qualified Mortgage that is not higher-priced carries a safe harbour; a higher-priced QM carries a rebuttable presumption; a Non-QM carries neither. | 12 CFR 1026.43(e)(1) |
| What puts a loan outside the QM definition | Negative amortisation, interest-only payments, a balloon payment, a term over 30 years, points and fees above the cap, income and debt not verified as the rule requires, or a price above the general QM threshold. | 12 CFR 1026.43(e)(2) |
| Points and fees cap | A Qualified Mortgage may not have total points and fees above 3% of the loan amount for loans of $100,000 or more, with higher percentages for smaller loans. The thresholds are indexed annually. | 12 CFR 1026.43(e)(3) |
| Prepayment penalty | Prohibited on a consumer mortgage that is not a Qualified Mortgage. A prepayment penalty is permitted only on a fixed-rate QM that is not higher-priced, and is capped and stepped down. | 12 CFR 1026.43(g) |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- Varies entirely by programme — there is no single Non-QM guideline
- Income documented by whichever alternative the programme accepts: bank statements, assets, a profit-and-loss statement, or rental cash flow
- A credit score, down payment and reserve requirement set by the investor
- Ability to repay must still be established on an owner-occupied consumer loan
- Shorter waiting periods after a bankruptcy, foreclosure or short sale than agency guidelines require
- Available on principal residences, second homes and investment properties, at different terms
Ground floor
How it goes, top to bottom
Find out first whether you actually need one
Non-QM is more expensive than the alternatives. Test the conventional, FHA and VA routes properly before accepting that none of them works — the answer is often that one of them does with a different structure.
Identify which QM requirement your file fails
Documentation, debt ratio, credit event, property type or a structural feature. Knowing which one it is tells you which programme fits and how far outside the standard you actually are.
Ask what the loan would cost as a QM, for comparison
Even where a QM is not available to you, knowing the gap tells you what the exception is costing and whether it is worth waiting a year for a cleaner file.
Underwriting
Expect a manual, document-heavy review. The compensating factors in your file matter here in a way they do not in an automated approval.
Closing, and read the note yourself
Check the term, any interest-only period and what happens when it ends, and the amortisation. On a consumer non-QM there can be no prepayment penalty, so a refinance later is not blocked.
Non-QM against a Qualified Mortgage, on the things that differ
| Feature | Non-QM | Qualified Mortgage |
|---|---|---|
| Definition | Does not meet 12 CFR 1026.43(e) | Meets the general QM standard in Regulation Z |
| Ability-to-repay obligation | Applies | Applies |
| Presumption of compliance | None | Safe harbour at or below the pricing threshold; rebuttable presumption above it |
| Points and fees | Not capped by the QM test | Capped at 3% of the loan for loans of $100,000 or more, indexed annually |
| Features permitted | Interest-only, balloon, terms over 30 years, alternative documentation | None of those |
| Prepayment penalty | Prohibited on a consumer loan | Permitted only on a fixed-rate QM that is not higher-priced, and capped |
| Cost | Higher rate, larger down payment, more reserves | The cheaper of the two |
| Availability | Investor appetite; programmes can be withdrawn | Continuously available through the agency market |
This table scrolls sideways on a narrow screen.
Questions this raises
Is a Non-QM loan a subprime loan?
Not in the pre-2008 sense, and the difference is the ability-to-repay rule. The loans that caused the most harm then were made with no verification of whether the borrower could pay. That is now prohibited on every closed-end consumer mortgage regardless of QM status. A Non-QM loan today is verified income underwritten to a documented file; what it lacks is the legal presumption that the lender's determination was compliant.
What does losing the safe harbour actually mean for me?
In practical terms it changes the legal position if the loan is later challenged. On a QM that is not higher-priced, the lender's ability-to-repay determination is conclusively presumed correct. On a Non-QM there is no presumption at all, so the question would be examined on its facts. Lenders price that exposure into the loan, which is the largest part of why a Non-QM costs more.
Can I refinance out of a Non-QM loan later?
Usually, and there is nothing in the loan preventing it — a consumer non-QM cannot carry a prepayment penalty. What you cannot rely on is the market: your qualification improves with time and documentation, but rates and guidelines on the day you want to refinance are outside your control. Treat the refinance as a hope worth working toward rather than as part of the plan.
Are interest-only loans Non-QM?
Yes. Interest-only payments are one of the features expressly excluded from the Qualified Mortgage definition. During the interest-only period the balance does not fall at all, so you gain nothing in equity and you face a step-up in payment when the period ends and the loan starts amortising over a shorter remaining term. It is a legitimate structure for some situations, and the exclusion is there because it is riskier.
Put your own numbers through it
How much house is defensible? The affordability page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.