Bank Statement Loan Down Payment requirements
Down Payment Defined by Maximum Loan-to-Value (LTV)
Bank Statement Loan Down Payment requirements and Borrower Contribution play a significant role in determining borrower eligibility and overall loan structure. For Bank Statement Loans (BSLs), the down payment is dictated by the maximum Loan-to-Value (LTV) ratio allowed by the lender. Because BSLs use flexible income documentation, they are considered higher risk than conventional loans, often necessitating larger down payments to offset that risk.
The down payment required is directly linked to the borrower’s credit score (FICO), the loan amount, and the property type (Occupancy).
A. Maximum Financing Thresholds (Minimum Down Payment)
- Standard Minimum Down Payment: Bank statement loans often require down payments of 10% to 20% or more. North American Savings Bank (NASB) states that bank statement loans require a down payment of at least 10% and have a maximum LTV of 90%. First National Bank of America requires a minimum down payment of 15%.
- Highest Permitted LTV (Lowest Down Payment): The maximum LTV permitted on a purchase transaction for a Primary Residence under Alt Doc programs can reach 90%. This typically requires a high FICO score.
- LTV Reduction for Risk: LTV decreases as the FICO score declines or the loan amount increases. For instance, on a Primary Residence Alt Doc loan:
- A borrower with FICO 680+ can generally achieve 85% LTV (15% down payment) for loans up to $1,000,000.
- A borrower with FICO 620 is generally limited to 75% LTV (25% down payment) for loans up to $1,000,000.
B. Investment and Second Home Down Payments
For non-owner-occupied properties, the maximum LTV is typically more conservative, resulting in higher down payment requirements:
- For Second Homes and Investment Properties up to $1,000,000 (Alt Doc), the maximum LTV is often capped at 80% for FICO 660+. This requires a minimum of 20% down payment.
- For lower FICO scores (600-639) on Investment Properties (Alt Doc), the maximum LTV drops to 70% (requiring a 30% down payment).
Borrower Minimum Contribution and Gift Fund Rules
While the final down payment can often be composed of various asset sources, many programs mandate that a portion of the funds come directly from the borrower’s own resources, especially when utilizing Gift Funds.
A. Use of Gift Funds
Gift funds are an acceptable source for the down payment and closing costs on purchase transactions.
However, the use of Gift Funds is subject to strict limitations:
1. Investment Property Restriction: Gift funds are not allowed for down payment on investment property transactions.
2. Minimum Contribution Required: For purchase transactions on a Primary Residence, if Gift Funds are used:
– The borrower generally must have 5% of their own funds documented. This contribution is required to be documented but not necessarily used toward the down payment.
– If the borrower has no documented housing history, they must have 10% of their own funds documented for the purchase of a primary residence when using gift funds.
– For the Prime NQM Full Doc program, a minimum of 3% of the purchase price must come from the Borrower’s own funds.
B. Alternative Contribution Methods
When loans utilize non-occupant co-borrowers for qualification:
- Under the Bank Statement Alt Doc program with a non-occupant co-borrower (Method Two), the occupant borrower must contribute 5% of their own funds to the transaction if it is a purchase.
- Certain high-LTV scenarios (LTV ?80%) do not require a minimum borrower contribution.
Documentation of Down Payment Funds
All funds used for the down payment must be accurately sourced and documented, a process that relies heavily on asset verification:
- Asset Documentation: Assets used for the down payment must be verified with account statements for the most recent two months and must reflect a consecutive 60 days of asset verification. Assets must be sourced/seasoned for 30 days in the Prime NQM program.
- Asset Exclusion in Income Calculation: Funds designated for the down payment, closing costs, and reserves must be excluded (subtracted) from the total liquid assets when calculating imputed income in Asset Depletion programs.
- Large Deposits: Any single deposit exceeding 50% of the total monthly qualifying income may be considered a “large deposit” and requires a Letter of Explanation (LOE) and documentation to confirm they are from an eligible source for the down payment.
- Earnest Money Deposit: Earnest money deposits must be fully documented, including the source from the borrower’s account(s) and evidence of transfer to the closing agent.
In essence, while Bank Statement Loans offer flexibility on income, they impose clear boundaries on LTV (Max 90%) and minimum borrower equity contribution (often 5% to 10%) to ensure financial stability in the transaction.
FAQ's
Assets used for the down payment must be verified with account statements for the most recent two months and must reflect a consecutive 60 days of asset verification. In the Prime NQM Series, assets must be sourced/seasoned for 30 days.
Business funds are generally allowed for the down payment if the borrower has 100% ownership of the business. If there is shared ownership, other owners must provide a letter confirming the borrower’s access to the funds.
No. Gift funds are not allowed for down payment on investment property transactions.
Yes, if Gift Funds are used on a Primary Residence purchase: if the LTV is greater than 80%, the borrower must have 5% of their own funds documented. If the borrower has no housing history, they must document 10% of their own funds.
Gift funds are allowed for down payment and closing costs on purchase transactions.
Yes, BSLs are eligible for Investment Properties. For Alt Doc Investment Purchases up to $1,000,000, the maximum LTV is typically 80% (requiring a minimum 20% down payment) for borrowers with FICO 660 or higher.
A lower FICO score typically requires a larger down payment. For instance, on a Primary Residence Alt Doc purchase up to $1,000,000: a FICO of 700 allows 85% LTV (15% down payment), but a FICO of 620 is limited to 75% LTV (25% down payment).
The maximum LTV can reach 90% for a purchase of a Primary Residence in certain program tiers, typically requiring a high FICO score. LTVs for Alt Doc purchases can reach 85% for loans up to $1,500,000 for borrowers with FICO 700+.
Down payment requirements for Non-QM loans typically range from 10% to 30%. You can generally expect to need a minimum of 15% for the loan amount.
The down payment is dictated by the maximum Loan-to-Value (LTV) ratio permitted for the loan, which is based on the borrower’s FICO score, the loan amount, and the property type (Primary, Second Home, or Investment).
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