What Is a Nonqualified Mortgage?

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Quick Answer

A nonqualified mortgage is a type of home loan that allows lenders to use alternative methods, like bank statements and stated income, to verify a borrower’s ability to repay a loan. This type of loan could be beneficial if you’re self-employed, your income is hard to document, you carry a lot of debt or you’ve had recent credit issues.

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Qualifying for a mortgage can be challenging, especially if your income is hard to prove or you've had credit issues in your recent past. A nonqualified mortgage has alternative loan requirements that make it possible for people with unconventional finances to get the mortgage they need. If you're self-employed, invest in real estate, carry a lot of debt or have had a recent credit issue, a nonqualified mortgage might open the door to homeownership.

Nonqualified mortgages also come with some downsides. They can take a bit of legwork to find and may cost more in interest and fees. Still, if you're having trouble getting a mortgage because of income or credit requirements, you may want to look into nonqualified mortgages as an option. Here's what to know before you start.

Qualified vs. Nonqualified Mortgages

The core difference between qualified and nonqualified mortgages is how closely they follow consumer protections put in place by the Dodd-Frank Act and the Consumer Financial Protection Bureau (CFPB). These protections regulate interest rates and fees on home loans. They also require lenders to verify that borrowers have the ability to repay their loans to discourage borrowers and lenders from overborrowing.

What Is a Qualified Mortgage?

A qualified mortgage follows specific guidelines that include:

What Is a Nonqualified Mortgage?

A nonqualified mortgage bypasses one or more of the above guidelines. Here are a few examples of the terms and features you might find in a nonqualified mortgage:

  • 40-year term: Spreading payments out over 40 years can lower your monthly payment, but will raise your interest costs over the life of the loan.
  • Less documentation required: Use bank statements or even stated income instead of tax returns and pay stubs to verify your income.
  • High debt-to-income ratio (DTI) allowed: You may still qualify if your monthly debt payments exceed 43% of your gross income.
  • Jumbo loans: Loans that exceed the Fannie Mae and Freddie Mac limits for a single-family home are considered nonqualifying. As of 2025, this limit is $806,500 in most U.S. counties, but rises to $1,209,750 in designated "high-cost" counties.
  • Recent credit event loans: These mortgages are designed to work for people who are locked out of traditional mortgages due to a recent bankruptcy or foreclosure.

Who Should Consider a Nonqualified Mortgage?

If you need a bigger loan than you can get from a traditional mortgage, you might consider a nonqualified mortgage. Here are a few scenarios where a nonqualified mortgage help you secure a loan:

  • You're self-employed and your income is difficult to verify. This includes people who want to use side income to help qualify for a loan.
  • You need a jumbo loan.
  • You invest in real estate or own multiple properties and have multiple loans.
  • You need to lower your monthly payment by extending your mortgage to 40 years or getting an interest-only loan that won't require you to pay down your balance.
  • You have relatively low income but ample resources—for example, you recently sold your business and retired.
  • You recently declared bankruptcy but have recovered and are on track financially.
  • You have a high DTI but have a solid strategy for managing your monthly debt.

The good news? You may have options even if you're having a hard time qualifying for the mortgage you want. In a housing market that's seen rising home prices, then rising interest rates, it's not uncommon to want just a little more loan than you anticipated. A nonqualified mortgage may get you a bit more flexibility now. If your situation improves, you may be able to refinance to get better terms later.

Where Can You Get a Nonqualified Mortgage?

You can get a nonqualified mortgage through many banks, credit unions and mortgage lenders. Some types of nonqualified mortgages, like jumbo loans, are easier to find than others.

You may want to start by talking to your bank or credit union to see if they offer a loan that fits your situation. If you've worked with them a long time or have high account balances, you may benefit from relationship banking offers.

Alternatively, you may want to consider working with a mortgage broker who can help you pinpoint your challenges and suggest alternatives. Many online lenders have nonqualified loan options as well.

Should You Get a Nonqualified Mortgage?

Nonqualified mortgages work best for borrowers who have enough income and assets to cover a mortgage, but who have income that's difficult to document, high debt or recent credit issues that cause them to look riskier to lenders than they actually are. If you can afford the extra dollars in fees or interest, a nonqualified mortgage may help you secure the loan you need.

Before you make the jump, keep these things in mind:

  • Make sure you can afford it. A nonqualified mortgage isn't helpful if you wind up getting a mortgage you can't afford. If your income really is unreliable or your debt load too high, you may have difficulty meeting your monthly mortgage payments. A higher interest rate will result in higher costs over the life of the loan. Before you sign a loan agreement, make sure this is a loan you can live with.
  • Be a skeptical shopper. Get multiple options and compare. Take a close look at the loan's interest rate, closing costs, terms and conditions for several loans and choose the most affordable option.
  • Consider the alternatives. Think about scaling down your home purchase to make your loan more affordable. Also consider waiting to purchase a home to give your credit time to recover, to see if home prices or interest rates moderate, or to allow time to save more money for a down payment and reduce the size of the mortgage you'll need.

The Bottom Line

A nonqualified mortgage can help unconventional buyers get loan approval. But even a nonqualified mortgage is not without its requirements. You'll still need to demonstrate an ability to repay your loan and make timely payments over the long haul. If a nonqualified mortgage gets you into a home on your own terms, it's a benefit. If it looks like it might stretch you beyond your own limits, you may be better off looking for other options.

Whether you opt for a nonqualified or traditional mortgage, your credit is key to securing the best interest rates and terms on a home loan. Check your credit report and credit scores for free to see where you stand—and receive helpful tips on improving your credit.

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About the author

Gayle Sato writes about financial services and personal financial wellness, with a special focus on how digital transformation is changing our relationship with money. As a business and health writer for more than two decades, she has covered the shift from traditional money management to a world of instant, invisible payments and on-the-fly mobile security apps.

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