Are Profit and Loss Loans Available with Derogatory Credit
Are Profit and Loss Loans available with Derogatory Credit?
P&L Statement Only loans are categorized as Non-QM products, which means they do not adhere to the rigid waiting periods mandated by Qualified Mortgages (QM). This flexibility allows borrowers who have experienced financial setbacks—such as bankruptcy or foreclosure—to qualify sooner.
Are Profit and Loss Mortgage Loans available with Derogatory Credit?
P&L Statement Only loans are categorized as Non-QM products, which means they do not adhere to the rigid waiting periods mandated by Qualified Mortgages (QM). This flexibility allows borrowers who have experienced financial setbacks—such as bankruptcy or foreclosure—to qualify sooner.
Eligibility Based on Seasoning Requirements
We determine eligibility based on the “seasoning period,” which is the time elapsed since the discharge, dismissal, or completion date of the derogatory event. Different Non-QM programs offering P&L documentation have varying minimum seasoning periods:
| Derogatory Event | Minimum Seasoning Required | Program Example |
| Shortest Seasoning | 24 months (2 years) | our Non-QM Advantage Expanded (Alt Doc). Loans one day out of bankruptcy or foreclosure are also possible but require a higher down payment. |
| Mid-Tier Seasoning | 36 months (3 years) | our Sharp Premium, which explicitly allows the 12 Month 3rd Party P&L documentation type. |
| Longer Seasoning | 48 months (4 years) | our Non-QM Connect. Borrowers who completed any chapter of bankruptcy, foreclosure, short sale, or deed in lieu within the four years preceding the application date are not eligible for financing under this specific P&L program. |
Note on Bankruptcy Status: While seasoning requirements vary, borrowers currently in bankruptcy proceedings (any chapter, dismissed or discharged) are not eligible for financing under the our Non-QM Connect program. Furthermore, programs like the our Edge Series explicitly state that multiple bankruptcies, regardless of seasoning, are ineligible.
Financial and Credit Overlays
The use of P&L statements (limited documentation) combined with derogatory credit (increased risk) necessitates strict compensating factors, primarily concerning the borrower’s credit score and Loan-to-Value (LTV) ratio.
A. Minimum FICO Scores
P&L loans often require a higher FICO score floor than other Non-QM options to mitigate risk:
- The our Horizon P&L Only program requires a 700+ Score for all borrowers.
- The our Edge P&L program requires a minimum of 680 FICO.
- The our Sharp Premium program, which accepts P&L documentation, is for borrowers with a history of 36 months clean and a minimum FICO score of 660 (for the P&L option).
B. Down Payment and LTV Restrictions
The LTV (and thus the required down payment) is directly linked to the time elapsed since the credit event.
- For Non-QM mortgages sought one day out of bankruptcy and/or foreclosure, a substantial 30% down payment is required.
- For the our Advantage Alt Doc (P&L applicable) program, a borrower with a 620 FICO is limited to 75% LTV (25% down payment).
C. Housing History
Even after the seasoning period has passed, the borrower must demonstrate timely housing payments:
- For the our Edge Investor Classic program (which targets investors with 3 years seasoning after a housing event), the borrower must demonstrate a 1x30x12 housing history (no more than one 30-day late payment in the last 12 months).
- Housing Events and bankruptcies that occurred in the most recent two years must be supported by a signed written explanation from the borrower, detailing the cause and establishing a credible cause for the late payments.
Other Derogatory Accounts and Liens
In addition to major events like bankruptcy and foreclosure, P&L borrowers must address existing minor derogatory credit accounts:
- Collections and Charge-offs: For the our Sharp series, all Judgments or liens affecting title must be paid. Furthermore, non-title charge-offs and collections within three (3) years and exceeding $5,000 (individually or aggregate) must be paid.
- Disputes: If the credit report has an open derogatory dispute, it is not considered valid. All derogatory disputes must be resolved and an updated credit report received before the loan can close.
- Past Due Accounts: Past due active consumer debts can be no more than 30 days past due at the time of closing.
FAQ's
No, multiple bankruptcies are ineligible regardless of seasoning under our Edge AUS programs.
The our Connect P&L Statement Only program requires Five (5) years seasoning after a significant derogatory credit event, such as foreclosure, short sale, or bankruptcy.
Lenders generally compensate by charging higher interest rates for Non-QM loans and often require lower LTV ratios (larger down payments).
All Judgments or liens affecting title must be paid. Additionally, non-title charge-offs and collections exceeding $5,000 (individually or in aggregate) within three years must be paid.
For credit events seasoned less than 4 years, a Letter of Explanation (LOE) is required. Additionally, the borrower must demonstrate a satisfactory housing history of 0x30x12 (no 30-day late payments in the most recent 12 months).
No, borrowers currently in bankruptcy proceedings (any chapter, dismissed or discharged) are explicitly not eligible for financing under the Non-QM Connect program.
Some programs allow loans with as little as 24 months seasoning (2 years) after bankruptcy or foreclosure, provided the Loan-to-Value (LTV) is Max 80%.
Non-QM mortgages sought one day out of bankruptcy and/or foreclosure require a 30% down payment.
Non-QM loans are necessary because government and conventional loans require a mandatory waiting period after foreclosure or bankruptcy. In contrast, Non-QM loans often do not require a waiting period after such significant credit events.
Yes, P&L loans, as a type of Non-Qualified Mortgage (Non-QM), offer more lenient credit restrictions and greater flexibility for borrowers who may have had past financial issues like bankruptcy or foreclosure.
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