Non-QM Loan Decision Tree: Which Program Fits the Borrower

Non-QM is not one program. It is a category with five distinct documentation paths and multiple lender niches. Matching the borrower to the right path quickly is the difference between a clean approval and three declined applications.

Start With Income Documentation Type

• ✦W-2 borrower with high DTI or recent credit event: consider portfolio lender with manual underwrite rather than non-QM; most non-QM programs target self-employed income challenges
• ✦Self-employed with 12 to 24 months of business bank statements: bank statement loan; lenders use 50% to 100% of deposits as qualifying income depending on expense ratio elections
• ✦Self-employed with clean P&L but two years short of a tax return history: P&L loan; CPA-prepared statement typically required; 12-month P&L with one year of bank statements
• ✦Investor purchasing or refinancing rental property: DSCR loan; income is the property cash flow, not borrower income; no employment verification required
• ✦Foreign national or no US income documentation: foreign national program with asset verification; FICO floors at 680 to 720, LTV caps at 70% to 75%
• ✦Borrower with significant liquid assets but minimal income: asset depletion or asset qualifier; divide eligible assets by 60 to 84 months to create a synthetic income

Second Filter: FICO and LTV

After identifying the income type, the second filter is credit and equity. Non-QM lenders tier pricing by FICO, typically at 660, 680, 700, and 720 breakpoints. LTV caps vary by FICO: a 640 FICO borrower may be capped at 75% LTV on a bank statement program, while a 720 FICO borrower may access 85%. Run FICO and LTV first to eliminate lenders before worrying about income type nuances.

Third Filter: Property Type and Occupancy

Non-QM lenders often restrict condos, rural properties, manufactured homes, and unique property types. Investor properties have different LTV caps than primary residences within the same program. Always confirm property type eligibility before quoting rates.