Non-QM vs Conventional Loans: Which is Right for You?

Compare Non-QM and conventional mortgages side-by-side. Understand the key differences in qualification, rates, and when each loan type makes sense for your situation.

Understanding the Difference

When shopping for a mortgage, you'll encounter two main categories: Conventional (QM) loans and Non-QM loans. Understanding the differences can save you time and help you find the right fit.

What is a Conventional (QM) Loan?

A Qualified Mortgage (QM) meets specific guidelines set by the Consumer Financial Protection Bureau (CFPB). These loans:

Follow strict debt-to-income limits (typically 43%)
Require full income documentation
Have standardized underwriting
Can be sold to Fannie Mae or Freddie Mac

What is a Non-QM Loan?

Non-Qualified Mortgages don't meet QM standards but are still legal, regulated loans. They offer:

Flexible income documentation
Alternative qualification methods
Options for unique borrower situations
Portfolio lending (held by the lender)

Side-by-Side Comparison

Feature	Conventional (QM)	Non-QM
Income Docs	Tax returns, W-2s, pay stubs	Bank statements, assets, 1099s
DTI Limit	43-50%	Up to 55%
Credit Score	620+ (680+ for best rates)	620+ (some to 580)
Down Payment	3-20%	10-25%
Interest Rates	Lower	0.5-2% higher
Closing Time	30-45 days	21-30 days
Best For	W-2 employees	Self-employed, investors

When to Choose Conventional

Conventional loans are typically better when you:

Have W-2 employment income
Can fully document your income with tax returns
Have a DTI under 43%
Want the lowest possible rate
Plan to stay in the home long-term

When to Choose Non-QM

Non-QM loans make sense when you:

Are self-employed with significant write-offs
Have income that's hard to document traditionally
Recently started a business (less than 2 years)
Are a real estate investor (DSCR loans)
Have a recent credit event (bankruptcy, foreclosure)
Need to close quickly

Non-QM Loan Types Explained

Bank Statement Loans

Use 12-24 months of bank deposits instead of tax returns. Ideal for self-employed borrowers.

DSCR Loans

Qualify based on rental property income, not personal income. Perfect for investors.

Asset Depletion Loans

Use liquid assets to calculate income. Great for retirees and high-net-worth individuals.

1099 Loans

Qualify using 1099 forms for independent contractors and freelancers.

Foreign National Loans

For non-US citizens purchasing property in the United States.

Rate Comparison (2025)

Loan Type	Rate Range	Notes
Conventional 30-yr	6.50% - 7.25%	Best rates, full docs
Bank Statement	7.25% - 8.50%	+0.75-1.25% premium
DSCR	7.50% - 8.75%	Investment property
Asset Depletion	7.00% - 8.25%	Competitive for HNW

*Rates as of January 2025. Individual rates depend on credit, LTV, and lender.*

The Hybrid Approach

Some borrowers qualify for both conventional and Non-QM loans. In these cases:

Compare total costs over your expected ownership period
Consider future refinancing opportunities
Factor in closing speed if time-sensitive
Evaluate rate lock options

Common Misconceptions

"Non-QM loans are subprime"

False. Non-QM loans have strict underwriting—they just use different documentation. Many Non-QM borrowers have excellent credit.

"Non-QM rates are always much higher"

Partially true. While rates are higher, the difference is often only 0.5-1% for well-qualified borrowers.

"I can't refinance out of a Non-QM loan"

False. Many borrowers use Non-QM as a bridge and refinance into conventional loans later.

Making Your Decision

Ask yourself these questions:

Can I fully document my income with tax returns?
Is my DTI under 43%?
Am I willing to wait 30-45 days to close?
Is getting the absolute lowest rate my priority?

If you answered "no" to any of these, Non-QM might be your better option.

Get Personalized Guidance

Not sure which loan type is right for you? Our matching tool analyzes your situation and connects you with lenders who specialize in your profile.