A Qualified Mortgage is a loan that meets strict guidelines put in place by the Consumer Financial Protection Bureau (CFPB) following the 2008 financial crisis. These rules, established under the Dodd-Frank Act, are part of the Ability-to-Repay (ATR) rule, designed to ensure borrowers can reasonably repay their loans.
QM loans are most commonly backed by Fannie Mae or Freddie Mac, which makes them the default loan type for most retail lenders. These loans are eligible for sale to government-sponsored enterprises (GSEs) and follow automated underwriting systems like DU or LP.
To be considered QM, a loan must:
- Meet the ATR rule
- Be fully amortizing (no interest-only or negative amortization)
- Use documented income like W-2s or tax returns
- Maintain a DTI ratio typically ≤ 43%
- Avoid risky features (no balloon payments or prepayment penalties in most cases)
- Keep points and fees ≤ 3% of the loan amount
Learn more about income documentation
What Is a Non-QM Mortgage?
A Non-QM loan is any mortgage that doesn’t meet the criteria listed above but still includes a documented ability to repay. These loans are not backed by Fannie or Freddie, and are typically held by private investors or portfolio lenders.
Examples of Non-QM products include:
- Bank statement loans
- Interest-only loans
- DSCR loans for investors
- Asset depletion loans
- ITIN loans
- Reverse mortgages
Important: Non-QM ≠ Subprime. These borrowers often have strong credit and financials—they simply need alternative documentation or loan structures.
QM vs. Non-QM: A Quick Comparison
| Feature | QM Loans | Non-QM Loans |
|---|---|---|
| GSE Eligibility | Fannie/Freddie-backed | Private / portfolio lenders |
| DTI Ratio | Typically capped at 43% | Can exceed 50%, varies by lender |
| Loan Features | Fully amortizing only | Interest-only, balloon, etc. allowed |
| Documentation | W-2s, tax returns, pay stubs | Bank statements, assets, or alternative docs |
| Underwriting System | Automated (DU/LP) | Manual or lender-proprietary |
| Common Originators | Retail lenders, banks | Mortgage brokers through wholesale lenders |
| Typical Borrowers | W-2 wage earners | Self-employed, investors, high-net-worth, foreign nationals |
Why This Matters for Brokers
Most retail lenders and direct banks do not offer Non-QM loans. That means only mortgage brokers—working with wholesale lenders—can typically originate Non-QM deals. This gives brokers a competitive edge and allows them to serve a broader client base.
As broker market share continues to rise, Non-QM lending has become a powerful growth lever. Brokers who understand these products can win business from borrowers underserved by the traditional market.
Learn how to match borrowers to the right Non-QM loan
Real-World Borrower Scenarios
The investor with rental income but no W-2 job
Matched with: DSCR loan
Why: Evaluated based on rental income, not employment or DTI
The self-employed buyer with strong cash flow
Matched with: Bank statement loan
Why: Uses 12–24 months of deposits instead of W-2s
The foreign national looking to buy a second home
Matched with: ITIN loan
Why: Doesn’t have a Social Security number but has verifiable U.S. income
FAQ: QM vs. Non-QM
What is the ATR rule?
ATR stands for Ability-to-Repay. Lenders must verify a borrower’s income, assets, employment, credit history, and debt obligations to ensure the borrower can reasonably repay the loan.
Are all QM loans backed by Fannie or Freddie?
Not necessarily, but most QM loans are eligible for GSE backing and follow their underwriting systems.
Can a Non-QM loan ever be sold to Fannie or Freddie?
Generally no—Non-QM loans are not eligible for purchase by Fannie or Freddie and are instead sold to private investors or held in portfolio.
Can I offer Non-QM loans if I’m a retail lender?
In most cases, no. Non-QM is typically available only through wholesale channels—meaning brokers, not banks or direct lenders.
Do Non-QM loans require a higher down payment?
They can, but not always. Down payment requirements vary by product type and lender.
How Morty Helps You Offer Both QM and Non-QM Loans
Morty supports your business with:
- A large network of both QM and Non-QM lenders
- A POS designed for alternative documentation
- Processing and fulfillment support for complex loan files
- Rosey AI for real-time answers to loan qualification questions
Whether you’re working with a conventional buyer or a self-employed borrower, Morty gives you the tools to deliver.
