Financial and Credit Requirements for Profit and Loss Mortgage Loans
Minimum Credit Score (FICO) Requirements
To offset the inherent risk of verifying income through alternative documentation, the financial and credit requirements for Profit and Loss Mortgage Loans typically require higher minimum FICO scores compared to standard conventional or entry-level Non-QM products.
Program/Program Type | Minimum FICO Score Requirement |
our Horizon P&L Only | 700+ Score required for all borrowers. |
our Edge P&L (12/24 Month) | Min 680 FICO. |
our Horizon Expanded (Alt Doc) | Minimum credit score of 680 is generally required. |
our Sharp Series P&L | Minimum 660 FICO for 12 Month 3rd Party P&L under Sharp Expanded and Sharp Premium. |
P&L for Business Bank Statements | When a P&L statement is used with Bank Statements (Alt Doc), the minimum FICO score is often 660 (Sharp) or higher. |
Credit Score Calculation: The representative score used for qualification is determined by selecting the middle score when three credit reporting agencies are provided or the lower score when only two agency scores are provided.
Loan-to-Value (LTV) and Down Payment
The maximum allowable LTV (and thus the minimum down payment) is directly influenced by the borrower’s credit score and the loan purpose, particularly for Alt Doc programs like P&L.
A. our Advantage (Alt Doc) Primary Residence (Loans ?$1,000,000)
| FICO Score | Maximum LTV for Purchase & R/T Refinance |
| 700 | 85% LTV (15% down payment) |
| 660 | 80% LTV (20% down payment) |
| 620 | 75% LTV (25% down payment) |
B. P&L Specific Program LTVs
- our Edge P&L: The maximum LTV is 80% for Purchase, 75% for Rate & Term Refinance, and 70% for Cash Out Refinance.
- our Horizon P&L Only: The Max LTV is the lesser of the Program Matrix LTV or 80% for Owner Occupied (OO) and 75% for Second Home (SH) & Non-Owner Occupied (NOO).
- Declining Markets: Properties located in declining markets typically require a 5% LTV reduction off the maximum LTV the borrower qualifies for.
Debt-to-Income (DTI) and Residual Income
Non-QM P&L loans offer DTI flexibility since they do not need to adhere to the 43% DTI cap mandated for Qualified Mortgages (QM).
- Maximum DTI: The maximum Debt-to-Income ratio (DTI) for Alt Doc loans, including those using P&L, is typically capped at 50%.
- Higher DTI Eligibility: The Sharp Expanded program may allow DTI up to 55%, but this requires a minimum FICO score of 700 or greater and the maximum LTV must be 80%.
- Residual Income: Residual income requirements apply if the loan is classified as a Higher Priced Mortgage Loan (HPML) or when the DTI exceeds 43% on Primary Residence and Second Homes under the our Horizon program.
- Under the our Connect P&L Statement Only program, the minimum residual income requirement is $2,500.
- If the DTI is over 43% for NonQM Full Doc, 1099, P&L, and Bank Statements in the Nations Direct guidelines, the residual income required is $1,500.
Reserves and Assets
We require verified assets to cover closing costs, down payments, and reserves (a safety cushion of monthly payments) to confirm the borrower’s capacity.
- Minimum Reserves: Reserve requirements vary significantly by program and loan amount. For example, the our Sharp Premium program requires 3 Months Minimum reserves, while Sharp Expanded requires 6 Months Minimum reserves.
- Calculation: Reserves are measured by the number of months of housing expense (Principal, Interest, Taxes, Insurance, Association dues – PITIA or ITIA if Interest-Only).
- Cash-Out Funds: Cash-out proceeds from a refinance transaction can typically be used to meet the required reserve amounts.
- Gift Funds: Gift funds are generally ineligible for reserves in certain asset programs (like Flex Supreme asset depletion).
Derogatory Credit History and Seasoning
P&L loans (as Non-QM products) provide options for borrowers recovering from past financial difficulties, but require specific “seasoning” periods:
- Foreclosure, Short Sale, Bankruptcy (BK), Deed-in-Lieu (DIL): These events are classified as Significant Derogatory Credit Events.
- Seasoning Requirements (our Advantage): BK, Foreclosure, Short Sale, and DIL require 24 months seasoning if the LTV is Max 80%.
- Seasoning Requirements (our Sharp):
- Sharp Expanded requires 48 months (4 years) clean history after a derogatory housing event.
- Sharp Premium requires 36 months (3 years) clean history after a derogatory housing event.
- Housing History: Housing payment history must be satisfactory. For example, our Advantage requires 1x30x12 (a maximum of one 30-day late payment in the last 12 months) for LTVs up to 80%.
- Trade Line Requirements: Each borrower must generally have an established credit history, often requiring a minimum of three (3) tradelines covering 24 months of activity.
Higher Risk Features
P&L loans may permit features restricted by QM rules, provided the borrower meets stricter credit thresholds:
- Interest-Only (I/O) Payments: This feature is prohibited under QM rules. For our Non-QM Connect, Interest-Only is eligible but requires a minimum 700 FICO.
- Higher Rates: Non-QM loans carry higher interest rates than government and conventional loans, as the rates are based on the layered risks posed to us, including the use of alternative documentation.
FAQ's
Our Horizon P&L Only program requires a 700+ Score for all borrowers. Our other programs utilizing P&L documentation may require a minimum FICO of 660 or 680.
The maximum Loan-to-Value (LTV) is 75% for the our Connect P&L Statement Only program.
Our Edge 12/24 Month P&L documentation type allows a maximum LTV of 80% for Purchase transactions.
For Alt Doc (P&L applicable) loans under our Advantage program, a borrower with a 660 FICO is limited to a maximum 80% LTV for a purchase.
Seasoning requirements vary by program, but typically range from 24 months to 5 years. Our Connect P&L Statement Only program requires Five (5) years seasoning after a significant derogatory credit event.
Interest-Only features often require a higher FICO, such as a minimum 700 FICO, for Alt Doc programs like our Connect P&L Statement Only product.
All Judgments affecting title or liens affecting title must be paid. Additionally, non-title charge-offs and collections open less than 2 years and greater than $10,000 (individually or aggregate) must also be paid.
Borrowers must typically have an established credit history with a minimum of three (3) trade lines from traditional credit sources that reported for 24 months or more, with at least one active for the last 12 months.
The Sharp Premium program requires 3 Months Minimum reserves. Reserves are typically calculated based on the monthly housing expense (PITIA or ITIA).
Debt-to-Income (DTI) ratio allowed for Alt Doc P&L loans?
The maximum DTI ratio for Alt Doc loans, including those using P&L, is typically capped at 50%.
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For informational purposes only. No guarantee of accuracy is expressed or implied. Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. All loans subject to underwriting approval. Some products may not be available in all states and restrictions may apply. Equal Housing Opportunity.
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