'Non-QM' sounds like a warning label. It isn't. It's a regulatory category, and for many self-employed New Yorkers it's the reason a mortgage is possible at all.
This guide covers what the term actually means, the rule every non-QM lender still has to follow, the real tradeoffs, and when it makes sense to compare a non-QM loan against a conventional one.
What is a non-QM loan, and why does it exist?
After the 2008 crisis, federal rules created the Ability-to-Repay (ATR) rule and a category called the Qualified Mortgage. Loans that meet the QM definition get certain legal protections for the lender. Conventional loans sold to Fannie Mae and Freddie Mac, and FHA and VA loans, generally fall in that category.
QM standards lean on traditional income documentation, and they rule out certain loan features, including interest-only payments, negative amortization and terms longer than the QM maximum. For a self-employed borrower, traditional documentation means tax returns. A non-QM loan is simply one that sits outside that definition, most often because it documents income another way.
The Ability-to-Repay rule still applies
Under the CFPB's ATR rule, a lender must make a reasonable, good-faith determination that you can repay the loan. That applies to non-QM loans too. Non-QM doesn't remove the obligation to verify income. It changes which documents are used.
In practice, a non-QM lender will still check credit, verify assets and reserves, look at your debts, appraise the property and document your income. The documents are just different: bank statements, 1099s, a CPA-prepared P&L, or assets.
If anyone offers a mortgage that requires no proof of income at all, ask hard questions. That is not what non-QM means.
Example: a dentist weighing both paths
A Westchester dentist bought new equipment and depreciated it heavily. His lender's cash-flow analysis adds back some of the depreciation, and the conventional numbers come close but fall short. A bank statement program would count more of his practice deposits. Comparing the two, he weighs the higher cost of non-QM against waiting for next year's return. Either choice is reasonable. What matters is that he sees both.
What non-QM is not
- Not 'no doc'. Income is documented, just with different paperwork.
- Not subprime by definition. Many non-QM borrowers have solid credit and substantial assets. They're outside QM because of how they earn, not because of risk alone.
- Not unregulated. Non-QM lenders are licensed and follow federal and state lending rules, including ATR.
- Not a single product. It's a category that includes bank statement, 1099, P&L, asset-depletion and some investor loans, each with its own rules.
Common non-QM programs for self-employed New Yorkers
| Program | Income evidence | Often used by |
|---|---|---|
| Bank statement | 12 or 24 months of personal or business statements, with business deposits reduced by an expense factor | Owners with heavy write-offs and strong deposits |
| 1099 | Gross 1099 earnings less a set expense factor | Independent contractors and freelancers |
| P&L | A profit-and-loss statement prepared or signed by a CPA, EA or licensed preparer | Established businesses with professional bookkeeping |
| Asset depletion | Eligible liquid assets converted to a qualifying figure | Borrowers with significant savings or investments |
Non-QM loan pros and cons, stated plainly
The main advantage is access: a non-QM loan can count income that your tax returns don't show, and some programs accept properties conventional loans can't.
Non-QM loans generally cost more than conventional loans. Rates are typically higher. Down payment and reserve requirements are usually larger. Read every disclosure, including whether the loan carries any prepayment terms.
Property eligibility can be narrower too. That matters a lot in New York. Many non-QM programs don't lend on co-ops at all, while some bank statement programs do accept non-warrantable condos that conventional loans can't.
Credit, down payment and reserve requirements vary by program. Two non-QM lenders can treat the same file very differently.
Finding a non-QM lender in New York
Non-QM loans are offered by a mix of specialized non-QM lenders, some portfolio lenders and banks, and mortgage professionals who can access several programs. Mortgage brokers shop loans from multiple wholesale lenders. Mortgage bankers and direct lenders fund loans themselves. Retail banks mostly offer their own products, which often center on tax-return lending. Each model can work. What matters is that the person you work with can compare more than one program for your scenario.
When you vet a non-QM lender in New York, check the company's NMLS number on NMLS Consumer Access, confirm it's licensed to lend in New York, read reviews with a critical eye, and ask plainly how each program would figure your income, what it requires in reserves, and whether it has any prepayment terms.
Non-QM mortgage requirements vary by lender: credit, down payment, reserves, years in business and eligible property types are all set program by program.
When to compare non-QM with conventional
If your tax returns comfortably support the loan, a conventional loan is usually where to start, and non-QM may not add anything. The comparison earns its keep in the gray areas.
When you compare, look past the headline cost. Ask what each path requires in cash at closing and in reserves, which properties it accepts, and how it would treat your income next year if the business grows or dips.
- Your net income after write-offs is close to, but below, what you need on conventional.
- Your most recent year dropped, but your deposits show the business has recovered.
- You're near the two-year mark and a full-doc loan may work soon if you wait.
- Your loan is above the local conforming limit, which is $1,249,125 for a one-unit home in the five boroughs, Nassau and Westchester in 2026, and jumbo documentation rules come into play.
- The property is a co-op or a non-warrantable condo, where the list of eligible programs changes.
Common questions
What are non-QM lenders?
Non-QM lenders are licensed mortgage lenders that offer loans outside the Qualified Mortgage definition, such as bank statement, 1099, P&L and asset-depletion loans. They still follow the Ability-to-Repay rule. Many work through mortgage brokers and branches rather than retail bank branches, so most borrowers find them through a mortgage advisor.
Is a non-QM loan a good idea?
It can be, when your tax returns understate your real income and conventional loans don't work. It's usually not the best choice when you already qualify conventionally, because non-QM typically costs more. The best way to decide is to compare both on your actual numbers and property before choosing.
Is non-QM the same as subprime?
No. Subprime describes borrowers with weaker credit. Non-QM describes loans outside the QM definition, often because of how income is documented. Many non-QM borrowers are business owners with good credit and significant assets. Lenders still verify ability to repay.
Can I refinance out of a non-QM loan later?
Often, yes, if your situation changes. Some borrowers refinance into a conventional loan once their tax returns support it. Check the loan's disclosures for any prepayment terms first. Whether a future refinance makes sense depends on the market and your finances at the time, which no one can predict.
Do non-QM loans require a bigger down payment?
Usually. Down payment and reserve requirements are typically larger than for conventional loans, and they vary by program, property type and credit. Your advisor can show you what a specific program would ask for in your scenario.
Can I get a non-QM loan on a co-op?
Sometimes, but options are limited. Many non-QM lenders don't lend on co-ops, and some programs list co-ops as ineligible. The co-op board may also want tax returns even if the lender doesn't. See our co-op page for how the two hurdles work together.
What are examples of non-QM loans?
Common examples are bank statement loans, 1099 loans, P&L loans and asset-depletion loans, all of which document income differently than tax returns. Investor loans that qualify on a property's rental cash flow, often called DSCR loans, are non-QM too. So are loans with features the QM definition excludes, such as interest-only payments.
Why are extra-long-term mortgages classified as non-QM?
Because the Qualified Mortgage definition sets a maximum loan term. The CFPB's rule excludes loans with terms beyond that limit, along with interest-only and negative-amortization features. A loan with any of those features can still be legal and regulated. It just can't be a QM, so it falls in the non-QM category and the lender must still verify ability to repay.
How do you know if a loan is non-QM?
Ask the lender directly, and look at how your income is documented. If the lender is qualifying you on bank statements, 1099s, a P&L or assets rather than tax returns, or the loan has interest-only or other non-QM features, it's almost certainly non-QM. Read your Loan Estimate and disclosures closely, including any prepayment terms.
Are there non-QM loans for bad credit?
Some non-QM programs consider borrowers with past credit problems, but credit still matters and usually affects the rate, down payment and reserves required. Requirements vary by program, and no lender can promise approval. Non-QM is mainly about how income is documented, not a workaround for credit.