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Overview Video
What are Non-QM Alternative Income Loans?
If your income sources are not accepted by a bank’s or retail lender, you’re not alone and you’re not out of options.
Whether you’re:
- Self-Employed
- 1099 Earner
- Gig-Worker
- Are Asset Wealthy
- Retiree or Early Retiree
- W2 in addition to other non W2 income sources
- Foreign National
- Or your Tax Return does not reflect your financial story
From bank deposits and rental cash flow to business revenue and assets. We offer flexible Non-QM alternative income loans designed around how you actually earn your income.
Types of Non-QM Alternative Income Loans? (Click to Navigate or Scroll Down)
Non Traditional Income Sources can be organize in three types of borrower cash flow
Personal Cash Flow
- Personal Bank Statements:
Income based on allowable money deposited into your personal account that is available for spending
- 1099 (Simplified):
Income based on 1099 earnings using a streamlined approach, where lenders use gross income (or lightly adjusted income) without analyzing full business expenses or detailed financials.
Business Cash Flow
- Business Bank Statements:
Income based on allowable revenue flowing into your business account, adjusted for estimated expenses
-
1099 (Business Structured):
Income based on 1099 earnings where lenders treat the borrower like a business owner analyzing income more deeply and applying an expense factor or validating cash flow through bank statements. - Profit and Loss Statements:
Income based on your business’s net profit (after expenses), typically verified by a CPA
Asset-Based
- Asset Depletion:
Income created by converting your savings and investments into a monthly “income equivalent”
- Asset Utilization:
A more aggressive version of asset depletion that allows a higher portion of assets to count as income
These Can Be Used to Apply for one of the following 5 forms of Mortgages
| Type of Loan | What it Means | How Income Source is Used | Best For Borrowers That |
|---|---|---|---|
| Bank Statement Loan | A loan that qualifies income based on allowable deposits into a personal or business bank account, adjusted for estimated business expenses | Average deposits over 12–24 months, then apply an expense ratio (i.e., based on account type, industry, or CPA Statement) ranging from 10% to 50%. | Business owners, who mix personal and business funds, LLC/S-Corp owners, and contractors with strong revenue |
| 1099 Loan | A loan using gross 1099 income with little to no expense analysis, or expense analysis if 1099 structured) | Average 1099 income if personal with no expense factor if business with an expense factor or bank statement support | Independent contractors with consistent, straightforward income. Or higher-income borrowers with more complex 1099. |
| Profit and Loss Loan | A loan that qualifies income using a Profit & Loss statement showing net business income, usually verified by a CPA | Uses net income (after expenses) from the P&L | Self-employed borrowers with clean books but messy deposits |
| Asset Depletion Loan | A loan that converts liquid assets (cash, investments, retirement) into a qualifying monthly income stream | Total eligible assets divided over a set period (ex: 60 months) | Retirees, high-net-worth individuals, borrowers without active income |
| Asset Utilization Loan | A more aggressive version of asset depletion that allows a higher percentage of assets to be counted as income | Uses a larger portion of assets with a shorter calculation period | Borrowers needing to maximize income from assets |
What is a Bank Statement Loan?
A bank statement loan for self-employed borrowers allows you to qualify for a mortgage using your personal or business bank statements over 12–24 months, providing a flexible solution for those who cannot qualify with traditional tax returns or documented income.
What are the Requirements?
- 12 – 24 month of banks statements (Personal or Business)
- Credit scores usually in the 620 to 700+ range with better pricing at 680+
- Down Payments of 10% to 20%
- DTI of 40% to 50%
- Proven reserves post closing of 3 to 12 months of mortgage payments
- At least 2 years of self-employment or same line of work
How is income calculated ?
- All approved deposits are added (e.g., proven source, seasoned, etc.)
- An business expense factor is applied, usually 10% to 50% (e.g. $20,000 in deposits, expense factor 50%, proven deposits of $10,000)
- Expense factor can be mitigated with CPA letter and P&L statements
How to strengthen your approval?
- Consistent sourced deposits (no big swings, avoid mixing personal and business)
- Avoid large un-explained deposits
- Use CPA and P&L to reduce high expense factor for business accounts
- Keep a good credit score
- Have proven seasoned reserves
- Work with your lender to optimize your credit score (pay down cards, remove negatives, etc.)
Personal Bank Statement
Disallowed Transactions
| Type of Deposit | Why is Disallowed |
|---|---|
| Transfers between accounts (internal or external) | Double Counting Risk |
| Cash Advance / credit card draws | Borrowed money is not income |
| Loan proceeds (personal loans, HELOCs) | Debt not income |
| Sale of assets (car, property, equipment) | One-time, non-recurring |
| Tax refunds | Non-recurring |
| Gifts | Not Stable Income |
| Zelle/Venmo/Cash App (unverified) | Can not establish legitimate source |
| NSF reversals or refunds | Not true income |
| Gambling or lottery winnings | Unstable / non-continios income |
| Reimbursements (expenses paid back) | Not earned income |
| Child support/alimony (if not formally documented) | Not documented, inconsistent, no continuance proven |
| Cash Deposits (large/unexplained) | Excluded unless legitimate source documented |
Business Banks Statement
Disallowed Transactions
| Type of Deposit | Why is Disallowed |
|---|---|
| Owner Contributions | Not Business Revenue |
| Transfer from Personal accounts | Double counting |
| Loan proceeds/PPP/EIDL funds | Nor recurring operating income |
| Inter-company transfers | Not true revenue |
| Refunds from vendors/returns | Not income |
| Asset sales | One time event |
| Tax refunds | Not operating income |
| Insurance claim payout | Non-recurring |
| Large one-time deposit | Must be justified or excluded |
| Cash deposits without support | Hard to document source as business revenue |
Transactions Considered High Risk
(Maybe Reduced or Scrutinized)
- Irregular deposits
- Spikes in income
- Deposits without descriptions
- Mixed of personal and business activity
Potential Underwriting Adjustments
(Even if Counted)
Even deposits that ARE allowed often get reduced:
- Expense factor applied (10%–50%)
- Industry-specific adjustments
- CPA override if provided
If the deposit is not stable, repeatable, and earned it won’t count.
You can combine and stack income sources if they are NOT double-counting the same money and the lender allows it
| Income Type | Can Be Combined | Impact | Considerations | Best Use Case |
|---|---|---|---|---|
| Asset Depletion | ✅ YES (most common) | Adds additional monthly qualifying income on top of bank statement income | Must verify assets are separate from deposits; assets may also satisfy reserves | Fill income gaps or strengthen borderline deals |
| Asset Utilization | ✅ YES | Higher income boost vs depletion (more aggressive calculation) | Same as depletion; lender overlays may apply | When borrower needs maximum qualifying income |
| W2 (e.g., income, bonus) | ✅ YES | Adds averaged variable income | Must show 1–2 year history and consistency | Borrowers with hybrid income structures |
| W2 + Tax Returns (Co-borrower) | ✅ YES | Adds stable income on top of bank statement calculation | Fully allowed; no overlap issues if clearly separate | Mixed household income (spouse W2 + self-employed borrower) |
| 1099 (Personal) | ⚠️ SOMETIMES | May increase income if lender allows partial use | Usually cannot double count if deposits already include 1099 income | When 1099 income is not fully reflected in bank deposits |
| 1099 (Business) | ⚠️ LIMITED | May supplement income if analyzed separately | Must avoid overlap with bank deposits; lender may require choosing one method | Complex income where partial 1099 adds value |
| Pension/Social Security | ✅ YES | Stable income addition | Requires award letters and continuance (usually lifetime or ≥3 yrs) | Retirees still working or with side business deposits |
| Rental Income (Documented - Schedule E) | ✅ YES | Adds additional monthly qualifying cash flow | Must be documented (lease, tax returns, or appraisal methods); stability required | Investor or borrower with rental properties |
| Business Income (2nd Business - Tax Returns) | ⚠️ LIMITED | May increase income if separate and verified | Must ensure it's not flowing into same bank statements (no duplication) | Multiple business owners with separate income streams |
| P&L (Separate Business) | ⚠️ LIMITED | May add income if truly separate | Must prove no overlap; heavy scrutiny | Borrower owns multiple unrelated businesses |
| P&L (Used to Support Bank Statements) | ✅ YES (support only) | Does NOT add income; helps justify expense ratio | Used to lower expense factor or validate business | Improve bank stmt income calculation |
| P&L (Same Business) | ❌ NO (almost always) | No additional income represents same business activity | Considered duplicate income; lender will require one method | Choose stronger method (P&L OR bank stmt) |
What is a 1099 Loan?
A 1099 loan is designed for independent contractors and self-employed borrowers who receive income through 1099 forms instead of W-2s.
This program allows you to qualify for a mortgage using your 1099 earnings, rather than traditional tax returns—making it ideal if write-offs lower your reported income.
What are the Requirements?
- 1–2 years of 1099 forms (most programs require 2 years for best options)
- Credit score: typically 620–700+
- Best pricing at 680+
- Down payment: 10%–20%
- DTI (Debt-to-Income): ~40%–50%
- Reserves: 3–12 months of mortgage payments after closing
- Employment:
- At least 2 years in same line of work or industry
How is income calculated?
1099 loans focus on gross earnings, not net after write-offs:
- Total 1099 income is reviewed
- A standard expense factor may be applied (depending on lender)
- In some cases, no expense factor is required, maximizing your qualifying income. Most typical (varies by lender)
- 0% to 10% (most common)
- Sometimes up to 15%–20% depending on:
- Industry risk
- Lender guidelines
- Documentation strength
How to strengthen your approval?
- Keep your income consistent
- Maintain a strong credit
- Show financial stability – solid bank balances
- Stay organized – Clean 1099 documentation, and contract information
- Build reserves
You can combine and stack income sources if they are NOT double-counting the same money and the lender allows it
| Income Type | Can be combined | Impact | Considerations | Best Use Case |
|---|---|---|---|---|
| Asset Depletion | ✅ YES (best combo) | Adds separate monthly income on top of 1099 income | Must verify assets are not source of 1099 deposits; can also cover reserves | Boost income or solve shortfall quickly |
| Asset Utilization | ✅ YES | Higher income boost than depletion | Same rules as depletion; lender overlays apply | Maximize income for high-net-worth borrowers |
| W2 Income (borrower or co-borrower) | ✅ YES | Adds stable, documented income | Cleanest combination; no overlap if separate source | Spouse or borrower has hybrid income |
| Rental Income (Schedule E or lease) | ✅ YES | Adds net rental income (or reduces if loss) | Must be documented and stable; lender adjustments common | Investors or borrowers with multiple properties |
| Alimony / Child Support | ✅ YES (if documented) | Adds consistent income stream | Must be court-ordered, consistent, and continuance proven | Divorce situations |
| Social Security / Pension | ✅ YES | Adds stable income | Needs award letter and continuance (typically lifetime) | Retirees with 1099 side income |
| Second 1099 (different source) | ✅ SOMETIMES | Increases total income | Must show consistent history and stability | Multiple contracts or clients |
| Tax Returns (Same 1099 Income) | ❌ NO (almost always) | No added benefit—represents same income | Must choose one method (1099 OR tax returns) | Pick the higher income method |
| Tax Return, Schedules C - different business | ✅ YES | Adds additional qualifying income | Must be clearly separate from 1099, must show ownership percentage | Side business, investments, separate K-1 |
| P&L (Used to Replace 1099) | ✅ YES (as alternative) | May increase or decrease qualifying income depending on expenses | Treated as full business analysis; 1099 ignored | When expenses are low and net income is strong |
| P&L (Separate Business) | ⚠️ SOMETIMES | Can add additional income if unrelated to 1099 | Must prove separate entity, no overlap, independent revenue | Borrower owns multiple businesses |
What is an Asset Based Loan ?
There are two type of Asset Based Loans:
Asset Depletion Loan:
An Asset Depletion loan qualifies a borrower by converting their liquid assets into a monthly income stream, even if they have little or no employment income.
Asset Utilization Loan:
An Asset Utilization loan is a more aggressive version of asset depletion that allows a higher portion of assets to be counted or uses a shorter time horizon, resulting in higher qualifying income.
These mainly defer on how income is calculated and terms used.
What are the Requirements?
- Credit Score of 660 – 720+
- Asset base:
- Depletion: $250K – $500K
- Utilization: $500K – $1M+
- Terms:
- Depletion rate of 60 months, some lenders 84 to 120 months
- Utilization terms used 36 – 60 months
- Reserves 6 – 12 months of PITIA
- Employment is not requiered
- 2 – 3 months of asset statements
- Asset Utilization will tend to have more strict lender overlays
How is income calculated?
Asset Depletion:
- Eligible Assets / Depletion Term = monthly income
- Example: $600,000 / 60 months = $10,000
Asset Utilization:
- Eligible Assets * Utilization % / Terms = monthly income
- Example: $600,000 * 100% / 60 months = $10,000
How to strengthen your approval?
- Increase Eligible Assets
- Move funds into liquid accounts
- Avoid restricted or illiquid assets
- Season funds (typically 60+ days)
- Use Correct Asset Allocation
- Keep higher % in:
- Bank accounts
- Brokerage accounts
- Minimize reliance on retirement (discounted)
- Keep higher % in:
- Pair with Other Income (Strong Strategy) combine with with:
- W2 income
- Rental income
- Bank statement income
- Maintain Strong Credit Profile (reduce overlays)
- 680+ for depletion
- 700+ for utilization
- Control Loan Structure
- Lower LTV (more down payment)
- Keep DTI moderate
- Avoid high-risk property types
- Use Assets for Dual Purpose. Same assets can:
- Generate income
- Satisfy reserves
- Document Cleanly
- Provide full account statements
- Avoid large unexplained recent deposits
- Show consistent balances
What Counts as an asset?
- Checking & savings (100%)
- Brokerage accounts (100%)
- Retirement accounts (typically 60–70% counted if under age threshold – 59.5 or 62 years )
- Cash equivalents
Side By Side Comparison
| Feature | Asset Depletion | Asset Utilization |
|---|---|---|
| Income Calculation | Conservative | Aggresive |
| Term | 60 months | 36 to 60 months |
| Income Result | Lower | Higher |
| Risk Level | Lower | Higher |
| Credit Flexibility | More Forgiving | Stricter |
| Usage | Stability | Maximize approval |
What is a Profit and Loss (P&L) Loan?
A P&L (Profit & Loss) loan is a type of Non-QM mortgage where a borrower qualifies using their business’s net income (after expenses) shown on a Profit & Loss statement instead of tax returns.
What are the Requirements?
- Credit Score of 660 to 720+ (some lenders may offer ~620)
- In business for at least 2+ years, if strong profile some lenders may take 1 year
- P&L period of reporting of 12 months
- CPA prepared or signed P&L
- 2 to 3 months of Bank Statements to support the P&L
- Reserves of 9 to 18 months of PITIA
- Max LTV of 70% to 80%
- Must show that income is increasing
How is income calculated?
- Business revenue – Expenses = Net Income; Net Income/12
- Example $300,000 – $120,000 = $180,000
$180,000/12 = $15,000
Hot to strengthen your approval?
- CPA-Prepared or Signed P&L (BIGGEST FACTOR)
- Confirms legitimacy of income
- Reduces underwriting skepticism
- Can allow lower expense ratios
- Strong Expense Positioning
- Reasonable and realistic expenses
- Typically:
- 10–30% for low-overhead businesses
- Higher for trades/physical businesses
- Consistent Income Pattern
- Stable or increasing monthly revenue
- No sharp spikes or drops
- Bank Statement Support (Even If Not Required)
- 2–3 months showing deposits align with P&L
- Strong Credit Profile
- 680+ significantly improves acceptance
- 700+ = best terms and flexibility
- Adequate Reserves
- 9–12+ months PITIA preferred
- More reserves = lower risk
- Clean Documentation
- No contradictions
- No missing data
- Clear explanations if needed
P&L loans are won or lost based on how believable the net income not just how high it is.
Frequently Asked Questions
A Non‑QM mortgage is a home loan designed for borrowers who don’t meet traditional lending guidelines. Instead of relying strictly on W‑2s and tax returns, these loans use alternative ways to verify income and ability to repay.
Alternative income refers to non-traditional documentation methods used to qualify for a mortgage, such as:
- Bank statements
- 1099 income
- Profit & Loss statements
- Rental income
- Asset-based qualification
These methods are especially helpful for borrowers whose tax returns don’t accurately reflect their true earnings.
Non‑QM loans are ideal for borrowers such as:
- Self‑employed business owners
- Independent contractors and 1099 earners
- Real estate investors
- Gig workers or freelancers
- Retirees or high-net-worth individuals
- Borrowers with recent credit events
These programs are built for people with strong finances but non-traditional income structures.
Yes. Many Non‑QM programs allow you to qualify using bank statements, 1099s, or business cash flow instead of traditional income documentation.
A bank statement loan lets you qualify based on 12–24 months of personal or business bank deposits rather than tax returns. It’s one of the most common alternative income options for self‑employed borrowers.
No. Many Non‑QM borrowers have good to excellent credit but don’t fit traditional lending guidelines due to how their income is structured.
Key differences include:
- Flexible income verification
- More customized underwriting
- Ability to use alternative documentation
- Higher flexibility on debt-to-income ratios
However, they may come with slightly higher interest rates or down payment requirements due to the flexible structure.
Common programs include:
- Bank statement loans
- DSCR (Debt Service Coverage Ratio) loans for investors
- Asset depletion loans
- 1099-only loans
- Profit & Loss (P&L) loans
Each program is designed around a specific income scenario.
Down payment requirements typically range from 10% to 25%, depending on the program, credit profile, and property type.
Generally, yes. Because lenders use alternative documentation and assume more risk, rates are usually slightly higher than conventional loans.
Absolutely. Many Non‑QM programs especially DSCR loans are built specifically for investors and allow qualification based on rental income instead of personal income.
Yes. Non‑QM loans can be used for:
- Home purchases
- Rate and term refinances
- Cash‑out refinances
Yes. Even with flexible guidelines, lenders must still confirm that you can afford the loan using alternative documentation such as income trends, assets, and credit profile.
Non‑QM loans are legitimate, fully underwritten mortgage products designed for specific borrower scenarios they are not subprime loans.
A Non‑QM loan may be a great fit if:
- You’ve been denied a traditional mortgage
- Your income is inconsistent or hard to document
- You write off significant business expenses
- You earn through commissions, bonuses, or investments
Approval timelines are often comparable to traditional loans, though it depends on how quickly documentation (like bank statements or P&Ls) is provided.
- Flexible qualification criteria
- More approval options for unique income situations
- Ability to use real income (not just tax returns)
- Expanded opportunities for investors and self‑employed borrowers
- Higher interest rates
- Larger down payment requirements
- Fewer standard protections compared to QM loans
Lenders average your deposits over 12–24 months and apply an expense factor to calculate usable income.
- Transfers between accounts
- Loan proceeds or credit draws
- Gifts
- Tax refunds
- One-time large deposits
- Unverified Zelle/Venmo
Yes but only if they are not double-counting the same money.
- Bank statements + asset depletion
- 1099 + asset depletion
- P&L + asset depletion
