Full Doc vs. Non-QM Loans | Which Mortgage is Right for You?

Deciding between a Full Doc Loan  and a Non-QM Loan can be overwhelming. If you’re a W-2 employee with steady income, a Full Doc loan may be the best option. However, if you’re self-employed, a real estate investor, or have unique income sources, a Non-QM loan could be the solution you need.

In this guide, we’ll compare Full Doc vs. Non-QM Loans, discuss who each loan type is best for, and help you choose the right mortgage for your financial situation.

1. What is a Full Doc Loan?

Full Doc Loan Overview

A Full Documentation (Full Doc) Loan  is a traditional mortgage that requires borrowers to provide W-2s, tax returns, and pay stubs as proof of income. These loans offer low interest rates and competitive terms but require strict income verification.

✔ Best for W-2 employees, retirees, and borrowers with steady earnings.
✔ Lowest interest rates and best loan terms available.
✔ Follows traditional underwriting guidelines.

Full Doc Loan Requirements

✔ Min Credit Score: 620+
✔ Max LTV: 97% (First-Time Buyers), 95% (Standard), 90% (Jumbo)
✔ Income Documentation: W-2s, Tax Returns, Pay Stubs
✔ Loan Program: Full Doc with Alternative Doc Optional Co-Borrower

⏳ Pro Tip: If you have steady, verifiable income and a strong credit profile, a Full Doc Loan offers the lowest interest rates and best

2. What is a Non-QM Loan?

Non-QM Loan Overview

A Non-Qualified Mortgage (Non-QM) Loan is designed for borrowers who don’t meet traditional lending requirements. Instead of W-2s and tax returns, Non-QM loans allow alternative income documentation like bank statements, rental income (DSCR) , 1099 earnings, or profit & loss statements.

✔ Best for self-employed borrowers, real estate investors, and high-net-worth individuals.
✔ No traditional income verification required.
✔ Higher flexibility in loan qualification.

Non-QM Loan Options

A. DSCR Loans – Best loan for Real Estate Investors

✔ Qualify based on rental income instead of personal income.
✔ No tax returns or W-2s required.
✔ Loan Program: DSCR Loan

B. Bank Statement Loans – Best loan for Self-Employed Borrowers

✔ Use 12-24 months of bank deposits instead of tax returns.
✔ Ideal for business owners and entrepreneurs.
✔ Loan Program: Bank Statement Loan

C.   1099 VOE Loans – Best loan for Independent Contractors

✔ Qualify using 1099 earnings instead of tax returns.
✔ Perfect for gig workers, commission-based earners, and freelancers.
✔ Loan Program: 1099 VOE Loan

D. P&L Loans – Best loan for Business Owners with High Deductions

✔ Qualify using a CPA-prepared Profit & Loss statement.
✔ No tax returns required.
✔ Loan Program: P&L Only Loan

Frequently Asked Questions (FAQ)

Which loan is better: Full Doc or Non-QM?

It depends on your financial situation:

✔ If you have a steady W-2 income and want the lowest rate, go with a Full Doc Loan.
✔ If you’re self-employed, an investor, or have non-traditional income, a Non-QM Loan offers more flexibility.

Can I switch from a Non-QM Loan to a Full Doc Loan?

Yes! If you become eligible for a Full Doc Loan later (e.g., by increasing your W-2 income), you can refinance from a Non-QM Loan to a Full Doc Loan for a lower rate.

Do Non-QM Loans have higher interest rates?

Generally, yes slightly, because they have more flexible approval criteria which means more risk to the investor backing the loan. However, rates vary based on credit score, loan type, and down payment.

Are Non-QM Loans available for investment properties?

Yes! DSCR Loans are a top Non-QM option for investors, allowing you to qualify based on rental income.

What’s the minimum credit score for a Non-QM Loan?

Most Non-QM loans require a minimum 660 credit score.