How to Apply for a Non-Qualified Mortgage

A non-qualified mortgage does not have to meet the lending standards of the Consumer Financial Protection Bureau (CFPB), so it can offer more flexible qualifications. 

Some homebuyers, such as those who have nontraditional sources of income, may not be able to get approved for a qualified mortgage. But they may be able to get a non-qualified mortgage. Learn how non-qualified mortgages work and how to apply, step by step.

What Is a Non-Qualified Mortgage?

A non-qualified mortgage is a home loan geared toward borrowers who do not meet traditional underwriting standards. These loans do not have to adhere to CFPB standards, including the “ability-to-repay” rule, which requires lenders to carefully review your financials.

Typically, non-qualified mortgages are for people with self-employed income, those with a limited or flawed credit history, real estate investors with multiple loans, or borrowers who can’t meet debt-to-income (DTI) thresholds.

Qualified Mortgage vs. Non-Qualified Mortgage

How to Apply for a Non-Qualified Mortgage

While non-qualified mortgages (also called non-QMs) may not be subject to the strict parameters of qualified mortgages, the application process may be more difficult. You may be required to submit more documentation.

In general, follow these main steps to apply for a non-qualified mortgage:

1. Choose a lender.
2. Ask questions.
3. Gather necessary documents.
4. Submit the loan application.

Preparing to Apply for a Non-Qualified Mortgage

Before you submit an application for a non-qualified mortgage, you can take several steps to prepare.

• Check your credit score: Knowing where you stand from a credit standpoint can help you comparison-shop for the best loan rates and terms. Although non-qualified loans may allow for lower scores, having a stronger score may help you qualify for a better rate.
• Prepare income verification documents: While a traditional mortgage will look primarily at W-2s and pay stubs, a non-qualified mortgage will consider alternative forms of income documentation like 1099s, two years of tax returns (if you are self-employed), several months of bank statements, client contracts/statements of work, receipts from business receivables, profit and loss statements, etc.
• Gather proof of liquid assets: If your income is lacking but you have large sums of liquid cash, you may be able to use it to demonstrate your ability to repay the loan. These might include statements for investments like your 401(k), brokerage accounts, savings accounts, etc.

Choose a Provider

For a non-qualified mortgage, it’s especially important to work with a lender that you feel comfortable with and that has a good reputation. Many major banks do not offer this type of loan because it carries more risk for the lender. 

And because the loan is not held to CFPB standards regarding your ability to pay, you must make sure that you aren’t getting in over your head or agreeing to unfavorable terms like balloon payments. Shop around, get a few quotes, and do a deep dive into the financial institutions you are considering to make sure they are aboveboard.

Ask Questions

Once you settle on a prospective lender, meet with a loan officer to discuss the loan requirements and whether your financial situation is a good fit. They can give you insight into what you can do to prepare to apply, including listing the documents you will need.

Gather Documentation

Whether you’re applying in person or online, try to have all of the necessary paperwork in front of you once you get started. If you’re uploading, you can even scan or snap all of your photos beforehand and save them in a desktop folder instead of as you go.

Submit a Loan Application

Filling out the loan application should be fairly straightforward. You’ll start with basic contact information, share your identification (such as a driver’s license number), and then answer questions about your income, assets, employment, and other debts.

Alternatives to Non-Qualified Mortgages

If you don't think you can get a qualified mortgage, you can explore other options in addition to a non-qualified mortgage. They include:

• Apply with a co-borrower: If you’re a freelancer but your co-borrower has a steady source of income, the additional income can help you meet DTI requirements.
• Delay home buying: If a credit score issue is holding you back, you could postpone buying a home to work on improving your financial situation to qualify. You can also look into FHA loans, which have lower credit score requirements than conventional loans. 
• Work with a mortgage broker: Consult with a mortgage professional to determine if you can get a qualified mortgage. They can advise you on whether you qualify for any special programs that can help. such as a first-time homebuyer program or a down payment assistance program.

The Bottom Line 

You can apply for a non-qualified mortgage through a similar process as you would with a qualified mortgage. Primarily, you’ll need to ensure you meet the lender’s financial criteria and submit any documentation they request on your income, assets, or other financial factors. Consider consulting with a mortgage professional to review all the options that fit your specific situation.