Non-QM and bank statement loans: what they are

If you are self-employed, earn irregularly or do not have tax returns that show everything you make, you may be offered a “non-QM” or “bank statement” loan. This guide explains what a qualified mortgage (QM) is, what changes when a loan is not one, how qualifying with bank statements works and what to check before you accept an offer.

Maximum term of a qualified mortgage

30 years³

Cap on points and fees for a qualified mortgage on larger loans

3%²

Things the lender must consider to decide whether you can repay

8²

The ability-to-repay rule applies to almost everyone

Before getting into QM and non-QM, there is one rule that covers almost every loan for your home: the ability-to-repay rule. According to the CFPB, it prohibits most lenders from giving you a mortgage unless they have made a reasonable and good faith determination that you can pay it back. To do that, they must find out, consider and document your income, assets, employment, credit history and monthly expenses. They also cannot rely only on a low introductory rate: if the rate goes up later, they have to consider whether you can pay the higher rate.¹

Regulation Z lists what the lender must consider: your income or assets (not counting the home’s value), your employment if it relies on it, the monthly payment on the loan and on any simultaneous loan, mortgage-related obligations, your current debts, alimony and child support, your debt-to-income ratiodebt-to-income ratio (DTI)Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, that is, income before taxes. If you pay a certain amount each month across a car, cards, student loans and the mortgage you are asking for, and you earn three times that, your DTI is one third. Lenders use it to measure whether you can manage the payment; each loan type and lender sets its own limit, and assistance programs usually publish theirs. Paying down debt before applying improves your DTI.See the full definitionClose or residual income, and your credit history.²

The rule applies to any consumer credit secured by a dwelling, with few exceptions, such as a home equity line of credit (HELOC). The repayment-ability requirements also do not apply to a reverse mortgage or to a bridge loan of 12 months or less.²

What a qualified mortgage (QM) is

According to the CFPB, a qualified mortgagequalified mortgage (QM)A qualified mortgage (QM) is, according to the CFPB, a loan with less risky features and protections that make it more likely you can afford it. Under the ability-to-repay rule, the lender must make a good-faith effort to determine whether you can repay; if the loan is a QM, the lender is presumed to have followed that rule. In general, a QM cannot have an interest-only period, negative amortization or, with some exceptions, a balloon payment; it cannot exceed the rule's maximum term; it has limits on upfront points and fees; and the lender must verify your income and debts. FHA, VA and USDA loans are qualified loans.See the full definitionClose (QM) is a loan with less risky features and protections that make it more likely you can afford it. If your loan is a QM, it is assumed that the lender followed the ability-to-repay rule.³

All government-backed loans (FHA, USDA and VA) are qualified mortgages. All others, including conventional loans backed by Fannie Mae and Freddie Mac and jumbo loans, must meet special requirements to qualify.³ In general, a qualified mortgage:

• Has no interest-onlyinterest-only mortgageAn interest-only mortgage has scheduled payments that, for a set period, cover only the interest. During that period what you owe does not go down with each payment. According to the CFPB, when the period ends you may pay off the balance all at once, refinance if that is available, or start paying principal with higher monthly payments. The CFPB warns not to assume you will be able to sell or refinance, because the home's value or your finances could change. A Qualified Mortgage (QM) cannot have an interest-only period, and the Loan Estimate labels the feature "Interest Only."See the full definitionClose period, where you pay interest without paying down principalprincipalThe principal is the amount of money you borrowed and have to pay back, not counting the interest. In Spanish it is also called "capital". When you start, the principal is the loan amount; with every payment a part goes toward reducing it, and what remains is called the balance. Interest is computed on that balance, so the less principal you owe, the less interest you pay. On your monthly payment you will see P&I: principal and interest, the part of the payment that goes to the loan, separate from taxes and insurance.See the full definitionClose.
• Has no negative amortization, meaning a balance that grows even though you pay.
• Has no balloon paymentballoon paymentA balloon payment is a large, one-time payment at the end of the loan term, higher than the payments before it and sometimes much higher. On the Loan Estimate, "Balloon Payment" means any payment that is more than two times a regular payment. Loans with a balloon payment usually have shorter terms and lower monthly payments that do not pay off the whole debt. If you cannot make the final payment, you may have to refinance or sell the home, or face foreclosure. With limited exceptions, a Qualified Mortgage (QM) cannot have a balloon payment.See the full definitionClose at the end, except for certain loans from small lenders.
• Lasts no more than 30 years.
• Has limits on the APRannual percentage rate (APR)The annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. Besides the interest, it includes certain loan charges, such as discount points and some lender fees, spread over the life of the loan and expressed as a yearly percentage. That is why the APR is almost always a little higher than the interest rate. It is useful for comparing offers: if two loans have the same interest rate but a different APR, the one with the higher APR charges more in fees.See the full definitionClose and on upfront points and fees.
• Requires the lender to verify your income or assets and debts and to consider your debt-to-income ratio or residual income.³

Regulation Z sets the numbers. On a general QM, the APR may not exceed the average prime offer rate for a comparable loan (APOR) by 2.25 or more percentage points on a first-lien loan at or above a set amount, with higher margins for smaller loans. And points and fees may not exceed 3% of the loan when the amount is $100,000 or more; those amounts are adjusted every year for inflation.²

What a non-QM loan is

A non-QM loannon-QM loanA non-QM loan is a mortgage that does not meet the requirements of a Qualified Mortgage (QM). According to the CFPB, a Qualified Mortgage cannot have risky features such as an interest-only period, a balance that grows (negative amortization), balloon payments or a term longer than 30 years, and it has limits on upfront points and fees. Lenders are not required to make only Qualified Mortgages, but most lenders must still make a good-faith determination that you can repay the loan (the ability-to-repay rule). Federal banking regulators have said a bank may make both QM and non-QM loans.See the full definitionClose is simply a mortgage that does not meet the requirements of a qualified mortgage. It is allowed. The CFPB says the mortgage rules only stop a lender from making a loan when the borrower cannot repay, and that lenders are not required to make qualified mortgages.⁴

What changes, according to official sources:

• No federal cap on points and fees. Only qualified mortgages have one; outside them, a lender can charge more if it chooses.⁴
• No assumption that the lender followed the rule. That assumption is for QMs.³ On a non-QM, the lender still has to determine in good faith that you can repay.²
• The QM rules do not apply. A loan that is interest-only, has a balloon payment or a term over 30 years cannot be a general QM,² so read the terms of a non-QM carefully.⁶
• No prepayment penalty, if it is a loan covered by the rule: the law only allows one on a QM with an APR that cannot go up and that is not higher-priced, and even then with limits on time and amount.²

Qualified mortgage and non-QM loan, side by side

FHA, VA, USDA and those that meet the requirements

Qualified mortgage (QM)

• No interest-only period, growing balance or balloon payment; term of up to 30 years.³
• Limits on the APR and on points and fees.²
• The lender is assumed to have followed the ability-to-repay rule.³

Does not meet the QM requirements

Non-QM loan

• No federal cap on points and fees.⁴
• The lender still has to determine in good faith that you can repay.²
• If it is a covered loan, it cannot have a prepayment penalty.²

Neither is "good" or "bad" because of its label: what matters are the terms, and those are on your Loan Estimate.⁶

Bank statement loans: qualifying with bank statements

A “bank statement” loan is one where the lender calculates your income from your bank statementsbank statementA bank statement is the summary your bank or credit union gives you of the activity in your account over a period: deposits, withdrawals, payments and the ending balance. Most send one every month, on paper or online; the law only requires a monthly statement when there was at least one electronic transfer that month, and otherwise it may come quarterly. When you apply for a mortgage, the lender can use your statements to verify you have money for the down payment, closing and reserves. Under Fannie Mae's rules, they must show the bank's name, your name, part of the account number, the period, all transactions and the ending balance.See the full definitionClose instead of your tax returns. The federal rule allows it: Regulation Z says the lender must verify your income with reasonably reliable third-party records, and the examples include financial institution records, along with IRS tax transcriptsIRS tax transcriptAn IRS tax transcript is a free official summary of the information on your tax returns and tax account. It is not a photocopy of your return. There are several types: the tax return transcript shows most line items from your Form 1040 as filed and usually meets the needs of mortgage lenders; the tax account transcript shows changes made after you filed; the wage and income transcript shows what your W-2s and 1099s reported. You can get one through your IRS online account, by mail, by phone or with Form 4506-T.See the full definitionClose and the returns you filed.²

Why do these loans exist? Because the most widely used rules for self-employment income rely on taxes. Fannie Mae, for example, verifies the income of someone self-employedself-employedFor the IRS, you are self-employed if you run a business as a sole proprietor or work as an independent contractor, if you are a member of a partnership that runs a business, or if you are otherwise in business for yourself, including part-time or as a gig worker. Because no employer withholds taxes for you, you generally pay estimated taxes every quarter and file a yearly return. Besides income tax, you pay self-employment tax, which covers Social Security and Medicare. Your profit or loss is figured by subtracting your business expenses from your business income, usually on Schedule C.See the full definitionClose with signed federal tax returns for the past two years, with all schedules, or with IRS transcripts.⁹ If your returns show little income, that path may not be enough. The guide to buying a home when self-employed explains how your taxes count on FHA and conventional loans.

If you are offered a bank statement loan, ask whether it is a qualified mortgage and compare its points and fees: outside QMs there is no cap.⁴ The CFPB notes that if you are self-employed or your income is not from wages you may need more documents, and that requirements vary from lender to lender.¹⁰

The CFPB does not use the word “non-QM” on its conventional loans page, but it describes a similar group: “non-conforming” loans that do not fall into another category. Some are intended for borrowers with poor credit, tend to have high rates and may contain risky features, such as minimal documentation of your income, paying only the interest or letting the balance grow. Others are niche programs for people with unusual circumstances, such as self-employed borrowers. Its advice: consult multiple lenders, ask whether you could qualify for a conforming or FHA loan instead, and do not decide before you have your official Loan Estimates.¹¹

Can you afford it? The example of a typical home

The rule requires the lender to consider your debt-to-income ratio or residual income.² Here is how it looks with typical US numbers.

Example with real numbers

How much of income goes to the home

With the typical US household income and the payment on a typical home with an FHA loan and the minimum down payment, at the average rate of 7.18% as of November 5, 2026.

Typical US household monthly income

$6,728

Monthly payment on a typical home with FHA (with taxes and insurance)

$2,759

Share of income that goes to housing

41%

This is an example with national numbers. The lender also adds your other debts to calculate your debt-to-income ratio.² Try your own numbers.

Run it with your numbersHow much house can I afford?

The debt-to-income ratio guide explains how it is calculated and how to lower it, and the how much house can I afford tool runs the numbers with your income.

Before you accept a non-QM offer

How to review an offer, step by step

1. 1. Get the Loan Estimate

   Within 3 business days of applying

   Every lender uses the same form, so you can compare.⁷

2. 2. Check the "Loan Terms" table

   Page 1

   It says whether there is a prepayment penalty or a balloon payment and whether the amount, rate or payment can go up.⁶

3. 3. Ask whether it is a qualified mortgage

   Before you decide

   Outside QMs there is no federal cap on points and fees.⁴

4. 4. Compare with an FHA, VA, USDA or conventional loan

   Before you decide

   All government-backed loans are QMs; get their Loan Estimate too.³

   Try it with your numbersCompare loans

5. 5. Get at least three offers in writing

   Before you decide

   That is the CFPB's recommendation for comparing.⁸

A Loan EstimateLoan EstimateThe Loan Estimate is a three-page form you receive from the lender within days of applying for a mortgage. In the same format at every bank, it sums up the terms of the loan being offered: amount, interest rate, whether the payment can change, the estimated monthly payment with taxes and insurance, the itemized closing costs and how much cash you need at closing. Because every lender uses the same form, it lets you compare offers side by side. It commits you to nothing: requesting one is not accepting the loan.See the full definitionClose tells you a lot about a non-QM loan. Its “Loan Terms” table says whether there is a prepayment penalty, whether there is a balloon payment, meaning a payment more than twice a regular payment, and whether the amount, the rate or the payment can increase after closing.⁶ The closing costs guide shows where to find points and fees, and the guide on how to choose a mortgage lender helps you compare.

Lenders that do not follow the rule

Some lenders may not have to follow the ability-to-repay rule. The CFPB lists Community Development Financial Institutions (CDFIsCommunity Development Financial Institution (CDFI)A CDFI (Community Development Financial Institution) is an organization whose primary mission is community development. It provides loans, investments and other financial services in low-income communities and to people who lack access to financing. It can be a community development bank or credit union, or a loan fund that is not a bank. The law requires that it not be a government agency, that it be accountable to the community it serves and that it offer services such as financial and credit counseling along with its loans. The Treasury Department's CDFI Fund certifies them.See the full definitionClose) certified by the Treasury Department, certain housing organizations and down payment assistance providers that receive HUD funding, nonprofits that lend fewer than 200 times a year and only to low- or moderate-income borrowers, and state housing finance agenciesstate housing finance agency (HFA)A state housing finance agency (HFA) is a public body created by an act of a state legislature, or by a local government, with the power to finance housing. In that federal definition, "state" includes Puerto Rico and the District of Columbia. Its mission is to increase affordable housing for renters and homebuyers with low to moderate incomes, especially first-time homebuyers. HFAs usually do not lend directly: they work with participating lenders that offer their loans and down payment assistance. Programs vary by state.See the full definitionClose (HFAs).⁵ The nonprofits in that group must follow their own written procedures to determine that you can repay.⁵

If you are buying with an ITIN, the ITIN mortgage guide explains who lends and how, and the mortgage loan types guide compares FHA, VA, USDA and conventional loans.

If this is you

You are self-employed

Fannie Mae verifies your income with two years of tax returns or IRS transcripts.⁹ If you are offered a bank statement loan, ask whether it is a QM.⁴

You are paid in cash

The rule accepts financial institution records and receipts from check cashing and money transfer services as proof.² Depositing your income creates that record.

You are buying with an ITIN

If a lender says it is exempt from the ability-to-repay rule, that may be true: the CFPB lists CDFIs, for example.⁵ The ITIN mortgage guide explains your options.

You are buying for the first time

Compare a non-QM offer with an FHA, VA or USDA loan, which are always QMs.³ A HUD-approved housing counselor can help.¹²

Costly mistakes

• Mistake: Accepting a bank statement loan without asking whether it is a qualified mortgage.

  Instead: Ask in writing: outside QMs there is no federal cap on points and fees.⁴

• Mistake: Looking only at the monthly payment.

  Instead: Check in the "Loan Terms" table whether the amount, rate or payment can go up and whether there is a balloon payment.⁶

• Mistake: Thinking a non-QM lender does not have to check whether you can repay.

  Instead: Most lenders must determine it in good faith, on non-QM loans too.²

• Mistake: Comparing just one offer.

  Instead: Get at least three in writing, including one for FHA, VA, USDA or conventional.⁸³

• Mistake: Not bringing complete bank statements.

  Instead: Bring every page: requirements vary from lender to lender.¹⁰

What to do this week

1. Gather your complete bank statements and, if you have them, your last two years of tax returns or IRS transcripts.⁹²
2. Get the Loan Estimate for the non-QM offer and for at least one other option, such as FHA or conventional.⁷⁸
3. Ask in writing whether each offer is a qualified mortgage.⁴
4. Check the “Loan Terms” table on each one: penalty, balloon payment and payments that can go up.⁶
5. Try your numbers in the compare loans tool.⁷
6. If you want a second opinion, a HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose gives independent advice, often for free or at low cost.¹²