Non-QM Loans: A Real Estate Investor's Best Friend

Strong income. Steady job in your home country. Still can’t get approved?

That’s the reality many internationals face when applying for traditional U.S. mortgages. Traditional lenders often rely on strict documentation such as W-2 income, domestic credit history, and even residency. All things that many foreign real estate investors simply don’t have. Non-QM (non-qualified mortgage) loans offer a more flexible solution. They look beyond traditional measures and consider real-world factors like rental income, global assets, and investment performance.

For investors looking to expand their U.S. portfolios, Non-QM loans make it possible to qualify, act faster, and continue growing without being limited by conventional lending criteria. In this article, we’ll explain what Non-QM loans are, how they work, and how they can help you unlock new opportunities for portfolio growth.

Key takeaways:

• Non-QM (non-qualified mortgage) loans are a category of loans that provides flexible financing for borrowers who don’t meet traditional lending standards.
  
  
• Investors use non-QM loans because they offer flexible income and credit requirements, access to nontraditional properties, and faster approval.
  
  
• Non-QM loan options for real estate investors include DSCR loans, hard money loans, asset-based loans, and construction loans, depending on the investor’s strategy.

What is a non-QM loan?

Every foreign real estate investor needs to know about Non-QM loans. These are your new best friends if you want to grow a portfolio. As the name “non-qualified mortgage” implies, these loans are a flexible category of financing that can fit a variety of needs depending on your objectives.

Non-QM loans exist to help people who fall outside conventional underwriting standards such as self-employed investors, real estate professionals, and foreign nationals who may not have a U.S. credit score or W-2 income. By offering more flexible qualification criteria, non-QM loans make it possible to access financing and invest in U.S. real estate even when traditional mortgages aren’t an option.

What’s the difference between non-QM and QM loans?

Why do banks call some loans ‘qualified’ and others non-QM? The answer might surprise you.

Qualified mortgages (QM) follow strict rules to ensure borrowers can repay their loans. Think personal debt limits, credit scores, and standard income verification. Non-QM loans, on the other hand, exist for borrowers who use other means to qualify. They give lenders more flexibility while still managing risk. Here’s how non-QM loans differ from traditional qualified mortgages:

• Repayment evaluation: QM loans rely on a borrower’s personal debt-to-income  (DTI) ratio. This means that the borrower’s debt must not exceed a certain percentage of their monthly salary. In contrast, non-QM loans evaluate your ability to borrow differently. For example, DSCR loans are a type of non-QM loan that focuses on the property itself and its ability to generate positive cash flow.
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• Income documentation: QM loans usually require U.S. credit history, W-2 income, and other standard documents to determine eligibility. Non-QM loans, on the other hand, may focus more on the property itself and a review of your overall portfolio. These loans are designed to accommodate self-employed borrowers, foreign nationals, or those with irregular income. In some cases, they can even qualify borrowers without a traditional credit score by using alternative verification methods.
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• Speed: Non-QM loans often fund faster than QM loans, which can be a major advantage for investors looking to act quickly. Because these loans are less constrained by rigid income verification rules and standard underwriting requirements, lenders can review the property, your portfolio, and additional documentation instead of waiting for extensive W-2s, tax returns, or strict debt-to-income calculations. 
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• Financing flexibility: Non-QM loans make it possible to finance properties that don’t fit standard QM lending practices. They can cover unconventional properties, multi-unit buildings, or homes in need of significant repairs. For example, a flipper looking to purchase a house with fire damage could still qualify for a loan non-QM hard money loan. 

Ultimately, non-QM loans are designed for real estate investors and borrowers who don’t fit the standard mold required by traditional lenders. For investors ready to move quickly and get creative, non-QM loans can be a powerful tool.

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Read more: Foreign investors find success using non-QM loans

The pros and cons of non-QM loans

Non-QM loans offer a variety of options and creative solutions to challenges that many real estate investors—especially international buyers—face when applying for U.S. mortgages. Understanding the pros and cons can help you determine whether these loans are the right fit for your investment strategy.

Pros of non-QM loans

• Flexible qualification requirements: Lower or alternative credit score and down payment criteria allow more borrowers to qualify.

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• Accommodates unconventional income: Self-employed borrowers, foreign nationals, or those with irregular income can still secure financing.

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• Supports diverse investment strategies: Investors can finance flips, short-term rentals, multi-unit buildings, or other nontraditional projects.

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• Portfolio growth opportunities: Higher interest rates can be offset by the ability to acquire multiple properties or expand a real estate portfolio.

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• Faster and more flexible funding: Streamlined underwriting and alternative documentation often result in quicker loan approvals compared with QM loans.

 Cons of non-QM loans

• Higher interest rates: Non-QM loans typically carry higher rates than conventional QM loans, increasing borrowing costs.

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• Potentially higher fees: Origination fees, points, or closing costs can be higher due to the specialized nature of the loan.

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• Limited lender options: Not all banks or mortgage brokers offer non-QM products, which can make shopping for the best terms harder.

Non-QM loan options for real estate investors

Real estate investors have different strategies, goals, and financial situations. Over time, more and more non-QM loans were designed to solve these nuances. Choosing the right type of loan depends on your investment plan, the property type, and how you prefer to document income.

DSCR (debt-service-coverage-ratio) loans 

Interested in buying cash flowing rental properties? DSCR loans are a strong choice for you. DSCR (debt-service-coverage-ratio) loans evaluate a property’s ability to generate income rather than focusing on the borrower’s personal income. This enables you to grow your rental portfolio efficiently without being constrained by debt-to-income ratios or traditional income verification requirements. It puts the emphasis on property performance as an asset, not you personally.

Let’s look at Matt, one of Waltz’s customers as an example. He used a DSCR loan to refinance a single-family rental property in Columbia, Tennessee. As a self-employed Canadian without U.S. credit history, he likely would not have qualified for a QM-loan. However, Waltz evaluated the property’s rental income to determine eligibility. This approach allowed Matt to buy in cash, renovate the property, rent it out, and then use a cash-out refinance to access the equity he had created to acquire more real estate. DSCR loans like this provide a flexible, investor-focused path for acquiring and growing income-producing properties quickly.

Hard money loans 

Hard money loans are short-term, asset-based loans commonly used for flips or major renovations. Approval focuses primarily on the property’s after repair value (ARV). This makes them ideal for fast funding of high-risk, high-reward projects where time is of the essence.  Interest rates usually start at 10% or higher, reflecting the short-term, high-risk nature of these loans. 

Imagine an investor wanted to purchase a distressed single-family home that traditional lenders would not finance due to its condition. They secured a hard money loan, putting some of their own money into the deal, and received the funds in draws as the renovation progressed. The loan was structured with interest-only payments and a balloon payment due at the end of the term, allowing the investor to focus on completing the renovation efficiently without paying down principal during the project. Within months, the property was fully renovated and ready for sale. Hard money loans like this provide a flexible and fast-access solution for investors taking on high-risk, high-reward value-add projects.

Construction loans

Envision yourself building an apartment complex?

Construction loans are designed to finance new builds or major renovations for development projects. They are tailored for investors undertaking large-scale construction or multi-unit developments, with flexible terms structured around project completion and milestone-based draws.

For instance, an investor planned to build a three-unit rental property from the ground up. With a construction loan, they could fund each stage of construction as it progressed, from laying the foundation to completing interior finishes. Construction loans make it possible to take on complex development projects while providing the funding needed at each stage of construction.

Asset-based loans

No U.S. income? High net worth? Asset-based loans allow you to leverage your financial situation.

These loans qualify borrowers based on assets such as savings or investments as collateral. They are ideal for high-net-worth investors who have substantial assets but irregular or nontraditional income streams. Asset-based loans can support a variety of investment strategies.

Is a non-QM loan the right choice for you?

Non-QM loans offer real estate investors, especially international buyers, the flexibility and creative financing solutions that traditional mortgages often cannot. They can help you expand your portfolio, finance unconventional properties, and move quickly on new opportunities, even if your income or credit history doesn’t fit the standard mold.

That’s where Waltz comes in. We specialize in Non-QM DSCR loans, built specifically for rental property investors. If you’re an international buyer looking for a lender who understands your unique needs and can offer flexible financing options, exploring these loans could be the key to growing your U.S. real estate portfolio.

Try Waltz today!

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