The Future of Non-QM Lending: Is Your Business Prepared?

Participants in the mortgage ecosystem have witnessed the evolution of non-QM from a niche product to a strategic necessity. The sector has proven its worth and staying power: non-QM loans are predicted to make up nearly 30% of non-agency mortgage-backed securities in 2025, according to Scotsman Guide, which indicates a significant increase in investor interest and the securitization of these loans.

This dynamic implies lenders must properly prepare to fully participate in the non-QM space to ensure their future success. In this blog, we will preview of factors shaping the future of non-QM – namely regulation, technology, and borrower demographics – and what lenders need to do to prepare their businesses for what lies ahead.

Regulatory Outlook and Market Trends

As an outgrowth of the post-financial crisis regulatory environment, non-QM lending has come to be a stable and well understood segment from a regulatory perspective. At the same time, the non-QM mortgage market is gaining momentum, fueled by a shift in borrower profiles and changing market conditions. There are two prominent trends propelling this segment’s growth:

1. Shift in workforce composition (1099, gig, self-employed) – Traditional underwriting models favor W-2 employees with predictable income, leaving a growing portion of the workforce underserved. The rise in various types of self-employed individuals has created a significant demand for more flexible mortgage solutions. These non-traditional earners often have complex income streams that don’t fit the strict criteria of agency underwriting, making them ideal candidates for non-QM loans, which allow for alternative documentation like bank statements or asset depletion.
2. Investor and second home market dynamics – Rising rental demand and the resurgence of short-term rentals have increased interest in investment properties and second homes – segments increasingly restricted by agency guidelines. The flexibility offered by non-QM loans has made them a go-to solution for real estate investors and buyers of vacation properties, especially as home prices remain high and returns on investment properties continue to attract attention.

Another factor to consider is the sector’s projected growth. The non-QM mortgage segment is expected to experience substantial growth in 2025, driven by borrower demand and investor appetite. In 2024, non-QM loans made up roughly 5% of total mortgage originations according to Scotsman Guide, but that share is expected to rise as more borrowers fall outside traditional agency guidelines. At Verus, we project a 30% increase in non-QM production volume in 2025 compared to last year, fueled by flexible underwriting options for self-employed individuals, real estate investors, and those with alternative income streams.

The Role of Technology and Automation in Non-QM Lending

As non-QM lending further solidifies its place in the mortgage market, the technology and automation platforms that support it are keeping pace with its growth and regulatory requirements.
Digital POS and LOS platforms are ushering in modernization. These platforms streamline the loan intake process, making it easier to gather alternative documentation like bank statements or 1099s. Some systems now offer non-QM integrations, enabling originators to capture non-agency borrower data at scale.

Automation is enhancing income analysis, bank statement reviews, and document recognition. AI-powered tools can now review and categorize up to two years of bank statements, analyze asset flows, and assess borrower income consistency in minutes rather than hours, greatly reducing the risk of manual errors and increasing throughput.

AI-driven workflows are reducing turn times and error rates. Technology is optimizing every stage of the loan process –- from pre-qualification to closing – helping lenders cut turn times by up to 30% and reduce underwriting errors, which is especially important in a product segment with more complex credit profiles.

Transparency and speed are improving the borrower and broker experience. Real-time status updates, digital disclosures, and streamlined communication portals are helping both brokers and borrowers stay informed and move faster, which is critical in today’s competitive market. This also helps build confidence in non-QM lending, which traditionally has faced challenges stemming from manual underwriting.

Technology is leveling the playing field between non-QM and agency loans. With automation and digital processing, non-QM is closing the operational efficiency gap that once existed between it and conforming loan products. As non-QM lenders adopt the same or even more agile technologies as their agency counterparts, they’re able to offer comparable service levels with expanded borrower flexibility.

Adapting Underwriting Models for Self-Employed and Gig Economy Borrowers

As the American workforce continues shifting away from traditional employment, lenders must rethink their underwriting frameworks to better serve non-W-2 borrowers without having to compromise on credit quality.

• Limitations of traditional tax return and W-2-based underwriting – Conventional models rely heavily on consistent income streams, usually via tax returns, pay stubs and employer documentation. This requirement excludes many creditworthy borrowers whose income may be irregular, seasonal, or derived from multiple sources.
• The importance of alternative documentation (bank statements, P&L, asset depletion) – Non-QM underwriting accommodates a more comprehensive assessment of a borrower’s financial picture by accepting alternative forms of income verification. For example, 12–24 months of bank statements, profit and loss statements prepared by a CPA, or evidence of substantial liquid assets can all be used to demonstrate ability to repay.
• Layered risk analysis as key tools – Instead of relying on a single factor like credit score or income, non-QM lenders use layered risk assessments – balancing credit, reserves, property type, and documentation type to create a full borrower profile. This enables tailored pricing that reflects a more nuanced understanding of risk.
• Leveraging data analytics to refine underwriting decisions – Advanced analytics and machine learning tools can detect income stability patterns across bank statements, evaluate cash flow variability, and identify anomalies, helping underwriters make more consistent, data-driven decisions even with non-traditional documentation.
• Training is necessary to properly underwrite this borrower segment – Underwriting non-QM loans requires a shift in mindset from rigid criteria to contextual judgment. To that end, lenders must train underwriters to evaluate complex financial profiles while building a culture that embraces innovation, flexibility, and borrower diversity.

Preparing Your Business for the Future

To ensure your lending operation is properly prepared a mortgage market where non-QM solutions are not only available but common, you should follow these five crucial steps:

1. Evaluate your tech stack and operational efficiency to identify areas that need to be improved or upgraded in order to meet the processing requirements for non-QM loans.
2. Build or deepen non-QM partnerships with investors, technology vendors, and other industry partners who have the knowledge and experience to ensure your non-QM success.
3. Upskill originators and underwriters for complex loan profiles so they are able to better address the needs of unserved but creditworthy borrowers.
4. Create a roadmap for compliance readiness to befit these higher complexity loans.
5. Commit to greater agility throughout your lending operation so you can quickly pivot in key areas such as your product mix, pricing, and processes.

Conclusion

The future of non-QM lending belongs to lenders who embrace modernization – not just to those who participate in the market. As borrower profiles evolve and demand for flexible financing grows, lenders that invest in technology, train their teams, and refine their underwriting strategies will be best positioned to lead. From automation and AI to alternative documentation and advanced analytics, innovation is no longer optional, it’s essential for delivering both speed and accuracy in a more complex lending landscape.

Now is the time to assess your organization’s readiness. Are your systems built to support non-W2 borrowers? Do your teams have the tools and training to confidently underwrite outside the agency box? As the non-QM market matures, those who act now will capture greater market share, while others risk falling behind. Leading in this space means more than offering non-QM – it means evolving with it.