Non-QM Cash-Out Refinance: What is it?

Updated on February 22, 2025

Non-QM Cash-Out Refinance: A Complete Guide to Alternative Mortgage Solutions

A Non-QM Cash-Out Refinance is an alternative financing option for homeowners who may not qualify for traditional mortgage loans due to unique income structures, credit challenges, or other financial circumstances. This type of refinancing allows borrowers to tap into their home equity without meeting the strict guidelines of Qualified Mortgage (QM) loans regulated by Fannie Mae, Freddie Mac, FHA, or VA.

For self-employed individuals, real estate investors, and borrowers with non-traditional income, Non-QM cash-out refinance loans can be an excellent way to access cash while maintaining financial flexibility.

In this comprehensive guide, we will cover:

✅ What a Non-QM Cash-Out Refinance is
✅ Who qualifies for a Non-QM loan
✅ Differences between Non-QM and QM loans
✅ Pros and cons of Non-QM cash-out refinancing
✅ Common use cases
✅ How to qualify and apply
✅ Real-world examples of borrowers using Non-QM cash-out refinancing

What Is a Non-QM Cash-Out Refinance?

A Non-QM (Non-Qualified Mortgage) Cash-Out Refinance is a refinancing option for borrowers who do not meet traditional lending guidelines but still have the ability to repay their loans. These loans do not conform to government-backed mortgage standards and allow for more flexible qualification criteria.

How Does a Non-QM Cash-Out Refinance Work?

The borrower refinances their existing mortgage and replaces it with a new loan.
The new loan is larger than the current balance, and the borrower receives the difference in cash.
Unlike Qualified Mortgages (QM), these loans allow alternative income documentation, such as bank statements, assets, or rental income.

Non-QM vs. QM Cash-Out Refinance: Key Differences

Feature	Non-QM Cash-Out Refinance	Traditional QM Cash-Out Refinance
Income Verification	Bank statements, assets, DSCR, alternative methods	W-2s, tax returns, pay stubs
Debt-to-Income (DTI) Ratio	Flexible DTI guidelines (50%+ possible)	43% DTI maximum
Credit Score Requirements	580+ (varies by lender)	620+ (Conventional), 580+ (FHA)
Employment History	No strict W-2 or tax return requirements	Requires steady, documented income
Loan Limits	Higher loan limits available	Conforming loan limits apply
Self-Employed Borrowers	Bank statement loans available	Requires tax returns and profit/loss statements
Investment Properties	No personal income verification needed (DSCR loans)	Requires borrower’s income to qualify
Approval Speed	Faster approvals with alternative documentation	Lengthy verification process

Who Qualifies for a Non-QM Cash-Out Refinance?

A Non-QM cash-out refinance is ideal for borrowers who:

✔️ Are self-employed or own a business with fluctuating income
✔️ Have high debt-to-income ratios but significant assets
✔️ Own multiple investment properties and need a DSCR loan (Debt-Service Coverage Ratio)
✔️ Work in the gig economy or freelance industry
✔️ Have non-traditional income sources (royalties, commissions, rental income, trust funds, etc.)
✔️ Experienced a recent credit event, such as bankruptcy, foreclosure, or late mortgage payments
✔️ Want to refinance a jumbo loan that doesn’t meet conforming guidelines
✔️ Need higher loan amounts than government-backed limits allow

Pros and Cons of Non-QM Cash-Out Refinance

✅ Benefits:

Flexible Income Verification – Use bank statements, rental income, assets, or business revenue instead of W-2s.
Higher Loan-to-Value (LTV) Ratios – Some lenders allow up to 85%-90% LTV.
No DTI Limits for Some Programs – Real estate investors can qualify based on rental income alone.
Recent Credit Events Allowed – Borrowers with foreclosure, bankruptcy, or late payments may still qualify.
Larger Loan Amounts – Some jumbo loans exceed conforming loan limits.
Multiple Property Financing – Great for investors using Debt-Service Coverage Ratio (DSCR) loans.

❌ Drawbacks:

Higher Interest Rates – Due to increased lender risk, rates may be 1%-3% higher than conventional loans.
Larger Down Payments or Equity Needed – Most Non-QM loans require at least 15%-20% home equity.
Limited Availability – Fewer lenders offer Non-QM loans compared to traditional options.
Prepayment Penalties – Some lenders may charge penalties for paying off the loan early.

Real-Life Examples of Non-QM Cash-Out Refinance

Example 1: Self-Employed Borrower Uses Bank Statement Loan

Borrower: Business owner with fluctuating income
Current Mortgage Balance: $400,000
Home Value: $800,000
New Loan Amount: $640,000 (80% LTV)
Cash Received: $240,000
Income Verification: 12 months of bank statements

🔹 Use of Funds:
✔ Expanded business operations
✔ Purchased additional inventory
✔ Paid off high-interest business credit cards

Example 2: Real Estate Investor Uses DSCR Loan

Borrower: Owns 8 rental properties
Current Mortgage Balance: $600,000
Home Value: $1,200,000
New Loan Amount: $900,000 (75% LTV)
Cash Received: $300,000
Income Verification: Rental income from properties

🔹 Use of Funds:
✔ Purchased another rental property
✔ Renovated units to increase rental income
✔ Consolidated multiple loans into one

Example 3: Recently Bankrupt Borrower Secures a Loan

Borrower: Homeowner recovering from Chapter 7 bankruptcy
Current Mortgage Balance: $250,000
Home Value: $500,000
New Loan Amount: $400,000 (80% LTV)
Cash Received: $150,000
Income Verification: Asset-based lending (savings & investments)

🔹 Use of Funds:
✔ Paid off remaining debts
✔ Rebuilt credit score
✔ Established an emergency fund

How to Apply for a Non-QM Cash-Out Refinance

1️⃣ Assess Your Home Equity – Ensure you have enough equity to withdraw cash.

2️⃣ Check Your Credit & Finances – Some lenders allow scores as low as 580, but higher scores get better rates.

3️⃣ Choose the Right Loan Type – Decide between a bank statement loan, DSCR loan, or asset-based loan.

4️⃣ Gather Documentation – Collect bank statements, property rental agreements, or proof of assets.

5️⃣ Compare Lenders – Non-QM loan rates vary by lender, so shop around.

6️⃣ Get a Home Appraisal – The lender will assess your home’s current market value.

7️⃣ Complete the Application & Approval Process – Once approved, sign the documents and receive your cash!

Final Thoughts: Is a Non-QM Cash-Out Refinance Right for You?

A Non-QM Cash-Out Refinance is a game-changer for self-employed borrowers, real estate investors, and individuals with non-traditional income. It offers flexible income verification, larger loan amounts, and alternative qualification methods.

However, it’s essential to compare lenders, understand the terms, and ensure that the new loan aligns with your financial goals.

🔹 If you need alternative financing, a Non-QM cash-out refinance may be your best option!

💡 Ready to explore your options? Contact a lender today to discuss your eligibility.