Down Payment Requirements for 1099 Loans
Down Payment Requirements for 1099 Loans
The down payment requirements for 1099 loans are generally higher than those for traditional Qualified Mortgages (QM). We employ lower LTV ratios (meaning higher down payments) to offset risks related to flexible underwriting, limited documentation, and potentially higher Debt-to-Income (DTI) ratios.
General and Explicit Minimum Down Payment Requirements
The typical down payment range for Non-QM loans, which includes 1099 products, is 10% to 30% of the purchase price.
A. Explicit 1099 Program Minimums
Some lenders offering dedicated 1099 mortgage loan programs explicitly require a high minimum contribution:
- For a 1099 loan program, a minimum 20% down payment is required. This requirement stems from the fact that 1099 loans are considered higher risk due to the absence of traditional income verification documents like W-2s and standard tax returns.
- The required down payment for an investment property loan, for which 1099 loans are eligible, is typically at least 20%.
B. Loan-to-Value (LTV) Caps
The required down payment is primarily governed by the maximum LTV allowed by the program matrix.
- In our Sharp Expanded program, the maximum LTV is 90% (10% down payment).
- If a borrower has a low credit score, the required down payment increases. For instance, LTV grids generally stipulate a 20% down payment (Max 80% LTV) for borrowers with credit scores under 660.
Down Payment Adjustments Based on Risk Factors
The down payment percentage (or LTV) is adjusted based on the specific risk layers present in the loan file, such as credit score and loan features (e.g., Interest-Only payments).
A. Credit Score Impact (General Non-QM/Alt Doc Pricing)
The down payment required depends directly on the borrower’s credit score:
- A borrower with a 680 credit score may qualify with a 10% down payment.
- A borrower with a 660 credit score may require a 15% down payment.
- A borrower with a score under 660 typically requires a 20% down payment.
B. Impact of Loan Features
Certain features often necessitate a higher down payment or stronger credit score to maintain stability:
- High DTI: In programs like our Sharp Expanded, if the borrower seeks a high Debt-to-Income (DTI) ratio (up to 55%), the maximum LTV is limited to 80% (20% down payment).
- Interest-Only (I/O) Payments: Since 1099 loans may use I/O features, qualifying for Interest-Only terms often requires a minimum 700 FICO score and caps the LTV. For instance, I/O loans in our Sharp Premium program limit the maximum LTV to 80%.
C. First-Time Homebuyers (FTHB) and Housing History
Borrowers using the 1099 Only program who are First-Time Homebuyers (FTHBs) and cannot document their full 12-month housing history (e.g., if living rent-free) are subject to specific limitations under our Connect program:
- The loan is restricted to an 80% maximum LTV (20% down payment).
- Interest-Only features are not eligible for these specific FTHB scenarios.
Minimum Borrower Contribution and Use of Gift Funds
We typically require that a portion of the funds come directly from the borrower’s own resources, regardless of the overall down payment size.
- Our Prime Non-QM Series: On purchase transactions, a minimum of 3% of the purchase price must originate from the borrower’s own seasoned funds.
- Gift Funds: Gift funds are generally permitted and can be used to cover the down payment. However, some programs impose requirements before gift funds can be utilized:
- Under the our Horizon DSCR No Ratio program, gift funds are permitted after a minimum 10% borrower contribution has been met, regardless of the LTV.
- Gift funds generally cannot be used to meet reserve requirements.
- Financing Contributions: Maximum financing contributions (seller/interested party credits) for 1099 loans used on a primary or second home can be up to 9% for LTVs up to 75%, or 6% for LTVs up to 90%. For investment properties, the maximum contribution is 3%.
FAQ's
On purchase transactions, a minimum of 3% of the purchase price must come from the Borrower’s own funds.
The amount of the down payment is also dependent on the longevity of the credit event (seasoning).
Yes, 1099 mortgage loans are available for investment properties. The down payment requirements for investment properties may be higher than those for a primary residence.
When a DTI of 55% is sought in the Sharp Expanded program, the maximum LTV is limited to 80% (20% down payment).
For a First-Time Homebuyer using the 1099 Only program and living rent-free (due to inability to document 12 months of housing history), the loan is restricted to an 80% maximum LTV (20% down payment).
Non-QM mortgages sought one day out of bankruptcy and/or foreclosure require a 30% down payment.
The maximum LTV for programs like the Sharp Expanded Series is 90%, meaning a minimum 10% down payment is required.
Borrowers with credit scores under 660 typically require a 20% down payment (Max 80% LTV).
North American Savings Bank (NASB) explicitly requires a minimum 20% down payment for their 1099 Mortgage Loan program.
Down payment requirements for Non-QM loans typically range from 10% to 30%.
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