Comparison:

QM (Qualified Mortgage) vs Non-QM (Non-Qualified Mortgage)

 

 

 

 

 

 

 

 

When purchasing a home or refinancing in the United States, mortgage loans are generally divided into two main categories based on how income is verified:

 

• Qualified Mortgage (QM Loan)
• Non-Qualified Mortgage (Non-QM Loan)

In general, QM loans rely on tax return-based income, while Non-QM loans allow alternative methods of income verification beyond tax returns.

 

Today, we will clearly and simply explain the differences between these two loan types.

The key point is that it’s not about which one is better or worse, but which one is the right strategy based on your situation.

 

 

 

 

1. QM (Qualified Mortgage)

 

 

✔ Common Names:

• • • Conventional Mortgage
    • Qualified Mortgage (QM)
    • Full Doc Loan
    • Conforming Loan

 

 

✔ Key Features:

• • • Income Verification: W-2 and tax returns required
    • DTI (Debt-to-Income Ratio): Typically around 43%–50%
    • Guidelines: Must follow standards set by Fannie Mae and Freddie Mac
    • Minimum Down Payment: Starting from about 3%
    • Interest Rates: Generally lower than Non-QM

 

 

✔ Advantages:

• • • Lower interest rates
    • Lower down payment
    • Stable and standardized loan product (easily sold in the secondary market)

 

 

✔ Important Note:

Because QM loans are standardized, they are often sold to other mortgage companies after closing.

👉 In other words, it is very normal for your mortgage servicing company to change.

 

 

✔ Ideal Borrowers:

• • • W-2 employees
    • Self-employed borrowers with strong tax-reported income
    • Borrowers with stable income

 

 

✔ Included U.S. Government Programs:

• • • FHA Loan
    • VA Loan

 

 

 

 

2.  Non-QM Loan (Non-Qualified Mortgage)

 

Non-QM loans are flexible loan programs designed for borrowers who do not meet QM requirements.

They provide more opportunities through flexible underwriting.
If a borrower does not qualify for QM, there is often a good chance they can qualify with a Non-QM loan.

Additionally, after closing, if the borrower’s financial situation improves or market interest rates drop,

👉 they may refinance into a QM loan or a better loan program.

👉 Instead of insisting only on QM, Non-QM can be a strategic option to take advantage of current opportunities.

 

Key Considerations:

• Interest rates may be 0.5%–2% higher than QM loans
• Minimum down payment typically starts at 10%

 

 

 

(1) Bank Statement Loan / P&L Loan  (Self-employed or 1099 borrowers)

 

Features:

• • • • • • Income is verified using business bank statements or CPA-prepared P&L, instead of tax returns
          • Typically uses 12–24 months of bank statements
          • Depending on the industry, 50%–75% of gross revenue can be used as qualifying income
          • Minimum down payment starts at 10%

 

Example:

• • • • • • • Tax return net income: $30,000/year ($2,500/month)
              👉 Difficult to qualify under QM

• • • • • • • Bank statement method:
              $25,000/month × 50% = $12,500 qualifying income

👉 Significantly improves approval chances

 

 

 

(2) DSCR Loan (Investment Property)

 

Features:

• • • • • • • No personal income required
            • Qualification based on rental income only

👉 Standard:
Rental income ≥ Mortgage + Taxes + Insurance

 

Down Payment:

• • • • • • • Typically 20%–25%

 

Ideal Borrowers:

• • • • • • • Real estate investors
            • Multi-property investors

 

 

 

 

(3) Asset Utilization Loan

 

Target Borrowers:

• • • • • • Retirees
          • Borrowers with significant assets but limited income documentation

 

Method:

Assets such as:

• • • • • • Cash (Checking/Savings)
          • Stocks
          • Bonds
          • Investment accounts
          • Retirement accounts

👉 are converted into qualifying monthly income

Conversion ratios vary by lender.

 

 

 

 

(4) ITIN Mortgage

 

Target Borrowers:

• • • • • • Borrowers without a Social Security Number

 

Requirements:

• • • • • • ITIN tax filings
          • 2 years of income verification
          • 10%–25% down payment
          • Alternative credit (rent, utilities) accepted
          • Higher interest rates than standard mortgages
          • Available for Primary, Second, and Investment properties

 

 

 

(5) Foreign National Mortgage

 

Target Borrowers:

• • • • • • Non-U.S. residents

 

Features:

• • • • • • No SSN required
          • Available for foreign buyers
          • 25%–30% down payment
          • Approval based on foreign income, bank statements, and assets
          • Refinancing available (some allow cash-out)

 

 

 

 

QM vs Non-QM Quick Comparison

 

 

 

 

Conclusion:

 

👉 QM = Stability + Lower Rates
👉 Non-QM = Flexibility + Opportunity

 

These are not competing options,
👉 but strategic financial tools depending on your situation.

 

 

 

Free Consultation:

 

We provide customized loan strategies based on your situation:

• • • QM / Non-QM comparison analysis
    • Pre-approval assistance
    • Fast closing support

 

 

 

 

 

 

 

Terry Kwon

Contact: (631) 624-4480

Email: terry@milestonepointinc.com

 

Funding Director at Milestone Point, Inc.

Licensed Mortgage Originator at Loan Factory

NMLS #2620208

Loan Factory NMLS #320841