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Non-QM Loan FAQs

We have the answers to the most common Non-QM loan questions.

Bank Statement Loans

Bank statement loans allow self-employed borrowers to apply for a home loan without having to provide pay stubs and W-2's from the past two years of employment.  Lenders look at the borrower's bank statements to determine if they can produce sufficient income to warrant approval for a mortgage loan.  Here's a blog that can explain more.
Interest rates for Bank Statement Loans are dependent on the borrowers’ credit score, income, down payment, and reserves. Call us today to obtain a rate quote based on your circumstances.

Like a traditional mortgage loan, you should maintain a good credit score (660 and up) to be approved for a bank statement loan.

With bank statement loans, the lender uses bank statements to analyze a borrower's income instead of using standard documentation. Lenders that offer bank statement loan programs will look at a borrower's bank over a 12 to 24 month time period to determine the borrower's net income, which is the amount of money earned after the borrower has paid taxes and business-related expenses.  Here’s a blog that helps explain this more.

NASB requires a minimum of two years of self-employment, 12 months of consecutive bank statements from the same account, up to 90% max LTV, and the borrower must have a 45% maximum debt-to-income ratio. The maximum loan amount is $1,250,000.

The qualifications for a bank statement loan may vary by lender. But in general, a borrower is required to have at least two years of self-employed income and business experience. Once a lender has determined income, they will decide the maximum loan amount allowed. This is based on the borrower’s debt-to-income ratio, a percentage of the monthly income that goes towards paying any debt they may have, including a mortgage.

1099 Loans

A 1099 income loan is for self-employed or independent contract workers who have difficulty qualifying for a conventional mortgage loan. Lenders look at income from a 1099 instead of tax returns.
  • The last six months of 1099 income, less if 1099 income is from most recent employer
  • Documentation of year-to-date income
  • 680 minimum credit score
A 1099 loan is a good mortgage loan option for those that are self-employed, freelancers, contractors, recently switched from W2 to 1099; anyone who files taxes using a W-9 and cannot qualify under Agency guidelines.
Minimum 10% down with mortgage insurance approval.

DSCR Loans

A DSCR loan is a measure of the cash flow a borrower has to pay against current debt obligations for an investment property. A DSCR loan is a type of non-QM loan used by real estate investors to help them qualify for a loan based on their property’s cash flow, without having to verify personal income. 

It's actually very simple to qualify for a DSCR loan. The property must generate enough rental income to offset the mortgage payment plus other expenses associated with the investment property. The minimum debt service coverage ratio required is between 1.1x and 1.2x, which means the property must produce between 10% and 20% net positive cash flow after all expenses have been deducted.  

The debt service coverage ratio is calculated by simply dividing the net operating income of the investment property by the debt obligations. For example - if your annual income is 100,000, and you know the debt obligations are $80,000, then your DSCR is 1.25 (100,000 / 80,000).

A DSCR loan doesn’t require proof of personal income through tax returns or pay stubs.  A real estate investor just needs to show their ability to repay the lender by having a qualifying DSCR.
A debt service coverage ratio of 1.0 indicates your investment property is generating sufficient income to just cover the mortgage payments and expenses. A DSCR greater than 1.2 is typically considered a good ratio for residential investment property.  

Investment Property Loan

An investment property loan allows you to purchase real estate to rent out for additional income or flip for a profit. They generally have higher interest rates and stricter lending requirements than standard mortgages.

The main qualifying factors for securing an investment property loan are:

  • Employment history: You must show proof of verified employment for a minimum of two years.
  • Credit score: Your credit score will determine your down payment, rate, and ability to be approved. Most lenders require a minimum credit score of 620 to qualify, and a credit score of 720 or higher will get you the best rates.
  • Debt to Income ratio (DTI): Your DTI is determined by dividing your gross monthly income by your total monthly debts. A DTI of 36% or less is ideal; anything above 50% may prevent you from qualifying.
  • Down payment: You should be prepared to put down 20%-25% of the purchase price for an investment property loan. 
Depending on your credit, a down payment of at least 20% is required for an investment property loan.
An investment property is a real estate purchase made to generate income through rental income or appreciation and is not the investor's primary residence.

The three types of investment properties are:

  • Residential: The most common form of investment property, these properties are purchased to rent out to tenants and earn monthly rentals. These can include single-family homes, apartments, condominiums, or townhomes.
  • Commercial: These are properties purchased for business purposes, such as office space, retail stores, restaurants, etc. The investor may purchase an already existing property or develop from the ground up.
  • Mixed-use: These properties can be used simultaneously for residential and commercial purposes. For instance, the ground level may be used for retail shops and the upper floors for residential units.

Portfolio Loans

A portfolio loan is a loan that a lender will keep in their portfolio, instead of selling to the secondary market.  A primary reason that these lenders keep the loans in their portfolio is to provide a lending option to those who may not fit secondary market eligibility guidelines and to help the local community. It’s part of their mission and purpose.
When borrowers who do not meet the criteria required for a conventional mortgage loan, such as those sold to Fannie Mae or Freddie Mac, a portfolio loan can be a more flexible option. Lenders offer these so that borrowers can get a loan, even though they may be self-employed, have a low credit score or have gone through a bankruptcy. These loans must be held and serviced by the lenders, as they cannot be sold in the secondary market.

Portfolio loan lenders like NASB will dig deep to find out about what caused your economic issues and what you’ve done to recover from it. This allows borrowers with blemishes on their financial history to have a chance at owning a home. Other situations that make a portfolio loan a good option include:

  • Self-employed borrowers.
  • Foreign nationals.
  • Borrowers with high income, low credit.
  • Borrowers without documented income but high net worth.

Because portfolio loans do not have to meet GSE (Government-Sponsored Enterprise) guidelines, the requirements for portfolio loans vary from lender to lender. The lender is assuming the risk, so they set the qualifications. Generally, if a borrower can show they have the ability to pay back the loan, can make a down payment, and has a FICO score and debt-to-income ratio above a certain threshold, they may qualify for a portfolio loan.

Bridge Loans

A bridge loan allows you to access the equity in the home you currently live in, so you can make an offer on a new house with needing a sale contingency. Here's a blog that explains more about bridge loans.
The easiest way to think of how a bridge loan works is to provide you with the cash to pay off what you still owe on your current mortgage, plus a little more for a down payment on the new home. The loans are generally short-term.
  • It makes cash available, so you get the home you want without waiting to sell or needing a sale contingency.
  • It puts odds in your favor in a competitive market.
  • If you don’t have cash for a down payment.
  • Interest-only payments until your home is sold.
  • May have to pay for an appraisal, along with associated closing costs and fees.
  • Might own two homes with two mortgage payments for a while.
  • Higher interest rates than conventional loans.
  • Lenders usually require at least 20% home equity.
To qualify for a bridge loan, the loan amount must be at least $100,000, it must be used in conjunction with a primary or secondary home purchase, and a full appraisal is required. 

Non-Warrantable Condo Loan

A non-warrantable condo loan is what borrowers seek to purchase a condo when it doesn't meet conventional loan requirement and cannot be approved by government-backed entities like Fannie Mae and Freddie Mac. 

There are a number of factors that can contribute to a condo being tagged as non-warrantable, including:

  • Ownership requires a membership, like a golf club.
  • The project is new construction and not completed yet.
  • One person or entity owns more than 10% of the total number of units.
  • The condo allows for the majority of the units to be rentals and/or short-term rental units.
  • The condo developer hasn’t ceded control of the owner’s association yet.
  • More than 25% of the units in development will be used commercially.
  • There is litigation of any kind tied to the project.

Non-warrantable condo loan requirements include:

  • A minimum credit score of 680
  • Last two years of verifiable income, including W-2s and tax returns
  • A debt-to-income ratio (DTI) of no more than 45%
  • A loan term of 30 years or less
  • Points and fees cannot exceed 3% of the loan amount


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What Our Customers Say
Darren C., February 6, 2022
★★★★★ (5)

"My loan officer was always very quick to respond to my emails and phone calls. He was extremely knowledgeable and helpful. I sell for a builder here in Florida and NASB and this type of loan, Bank Statement Loan, is now one I refer my clients to."