Non-Qualified Mortgage Refinance 

What Is a Non-QM Refinance?

A Non-QM refinance allows you to replace your existing mortgage with a new loan that uses alternative qualification methods. Instead of relying solely on W-2s and tax returns, Non-QM loans may use bank statements, asset depletion, rental income, or other creative forms of income verification.

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Popular Non-QM refinance programs include:

• Bank Statement Refinance – Qualify using 12–24 months of personal or business bank statements.

• Asset Depletion Loan – Convert your assets into qualifying income based on lender formulas.

• DSCR (Debt Service Coverage Ratio) Loan – Investors qualify using property rental income versus expenses.

• 1099-Only Loan – Ideal for independent contractors.

• Interest-Only Loan – Allows lower payments initially by paying only interest for a set term.

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How to Refinance with Non-QM: Step-by-Step Guide

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1. Define Your Goal
   Decide whether you’re seeking a lower rate, a different term, cash-out for investments or expenses, or a change in loan type.

2. Ensure You Meet Key Criteria

   • Credit score requirements are often more flexible, with many programs starting around 620.

   • Loan-to-Value (LTV) ratios vary, often allowing up to 80% for primary residences and less for investment properties.

   • Reserve requirements can be higher than traditional loans, often 6–12 months of payments.

3. Determine Seasoning Requirements
   Many Non-QM cash-out refinances require a minimum of 6–12 months from the date of purchase or your last refinance before you can apply.

4. Begin the Application
   Provide the alternative documentation required for your program—such as bank statements, CPA letters, rental income reports, or asset statements.

5. Receive a Loan Estimate
   Review interest rates, terms, monthly payments, and closing costs. Non-QM rates are typically higher than conventional loans, but they provide broader qualification.

6. Underwriting & Appraisal
   Non-QM underwriting is often manual, allowing for exceptions and flexibility. Appraisals are generally required for most refinance scenarios.

7. Close Your New Loan
   Sign your closing documents, pay or roll in closing costs, and your old mortgage is replaced by the new Non-QM loan.

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Why Homeowners Choose Non-QM Refinance

 

Non-QM refinances are often chosen by borrowers with strong financial profiles who simply don’t meet traditional guidelines. They can be ideal for:

• Self-employed borrowers with complex tax returns

• Investors with rental income as their main income source

• High-net-worth individuals leveraging assets instead of traditional income

• Borrowers with recent credit events like bankruptcy or foreclosure who have since recovered

Pros & Cons of Non-QM Refinancing

Pros:

• Flexible qualification standards

• Multiple income documentation options

• Available for primary residences, second homes, and investment properties

• Interest-only and other tailored loan structures available

Cons:

• Higher interest rates than conventional loans

• Larger reserve requirements

• Stricter cash-out seasoning rules

• Closing costs may be higher

Frequently Asked Questions

Can I refinance into a Non-QM loan from a conventional loan?
Yes, if you meet the lender’s requirements, you can move from a conventional loan into a Non-QM refinance.

How soon after purchasing a home can I do a Non-QM cash-out refinance?
Most programs require 6–12 months of ownership, but some allow exceptions for significant home value increases.

Do Non-QM refinances have prepayment penalties?
Some investment-focused Non-QM loans include prepayment penalties, usually for the first 1–3 years.

Final Thoughts

A Non-QM refinance offers tailored solutions when traditional programs fall short. Whether you’re self-employed, an investor, or have unique income streams, these loans can provide the flexibility you need to restructure your mortgage or access your equity.

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Ready to explore your Non-QM refinance options?
Schedule a Free Consultation or Apply Now to find the right program for your needs.