Down Payment Needed for Profit and Loss Loans
General Down Payment Range and Risk Mitigation
P&L loans fall under the Non-QM category, which generally requires borrowers to provide a larger down payment than traditional mortgages to offset the risks associated with flexible underwriting standards and higher Debt-to-Income (DTI) ratios.Down Payment Needed for Profit and Loss Loans depends on several factors.
- Standard Range: Down payment requirements for Non-QM loans typically range from 10% to 30%.
- Risk Compensation: We generally charge higher interest rates for Non-QM loans and often require lower LTV ratios (meaning higher down payments) to balance the risks associated with limited documentation.
- Minimum Threshold: Some specialized non-QM lenders require a minimum down payment of 15% for their Alt Doc programs.
LTV Maximums Based on Loan Program and Transaction Type
The specific minimum down payment is determined by the maximum allowable LTV dictated by the loan program’s eligibility matrix, which varies based on occupancy, transaction type, and the borrower’s credit profile.
| Program/Loan Type | Max LTV (Min Down Payment) | FICO Minimum | Context/Notes |
| our Edge P&L – Purchase | 80% LTV (20% Down) | Min 680 FICO | Primary residence only. |
| our Edge P&L – Rate/Term Refi | 75% LTV (25% Down) | Min 680 FICO | |
| our Edge P&L – Cash Out Refi | 70% LTV (30% Down) | Min 680 FICO | |
| our Connect P&L Only – OO | 80% LTV (20% Down) | 700+ Score | Owner-Occupied (OO) property. |
| our Connect P&L Only – SH/NOO | 75% LTV (25% Down) | 700+ Score | Second Home (SH) & Non-Owner Occupied (NOO) properties. |
| our Horizon P&L Plus BS | 80% LTV (20% Down) | N/A | For P&L supported by 2 months of bank statements. |
Impact of Credit Score on Down Payment
For Alt Doc programs, which include P&L statements, the required down payment amount is heavily influenced by the borrower’s credit score.
- 700+ FICO: Borrowers with a 700 FICO score may be eligible for up to 85% LTV (15% down payment) in certain Alt Doc matrices.
- 680 FICO: The our Edge P&L program requires a minimum 680 FICO score and restricts LTV to 80% for purchase transactions (20% down payment).
Down Payment Requirements in Specialized Circumstances
A. Derogatory Credit
The down payment requirement escalates significantly if the borrower has recent major derogatory events:
- Recent Bankruptcy/Foreclosure: Non-QM mortgages sought one day out of bankruptcy and/or foreclosure require a 30% down payment.
B. Property Location
If the collateral property is located in an area deemed a declining market by the appraiser, an additional reduction in LTV is applied, effectively increasing the down payment required:
- A 5% LTV reduction is generally applied to the maximum LTV the borrower otherwise qualifies for.
- For the our Edge series, if a purchase transaction is in a declining market, the maximum LTV is capped at 75% (25% down payment).
C. Incomplete Housing History (First-Time Homebuyers)
In the our Connect P&L Statement Only program, First-Time Homebuyers (FTHB) who are living rent-free or cannot document their 12-month housing history are not eligible.
However, if an FTHB is eligible under other Non-QM Alt Doc programs:
- If the FTHB is living rent-free and cannot document 12 months of housing history, the loan is restricted to 80% max LTV (20% down payment) and requires a 680 minimum FICO.
Minimum Borrower Contribution and Gift Funds
While gift funds are permitted in many P&L loan scenarios, the borrower is still generally required to contribute a minimum amount from their own funds:
- Minimum Contribution Rule: On purchase transactions, a minimum of 3% of the purchase price must typically come from the borrower’s own funds.
- Gift Fund Restrictions: Gift funds may be utilized toward down payment requirements. However, under the our Edge Gift Fund guidelines, if the LTV is greater than 75%, the borrower must have 5% of their own funds documented (though these funds can be used toward reserves if not needed for the down payment). Gift funds are generally not permitted for reserves.
- Asset Depletion Exception: Assets used for the down payment must be verified with account statements for the most recent two months and reflect 60 consecutive days of verification. Asset Depletion loan programs specifically note that gift funds are ineligible toward reserves.
FAQ's
For a purchase transaction under the our Edge P&L program, the maximum LTV is 80%, requiring a minimum of 20% down payment.
Cash-out refinances typically carry the highest down payment requirement; under the Edge P&L program, the maximum LTV is 70%, requiring 30% down payment.
For Investment Properties (NOO) using the Horizon P&L Only program, the maximum LTV is 75%, requiring a 25% down payment.
Non-Permanent Resident Aliens using the P&L Statement Only documentation under our Connect program are limited to a maximum LTV of 75%, requiring 25% down payment.
Rate/Term Refinance transactions using our Edge P&L documentation have a maximum LTV of 75%, requiring a 25% down payment.
No, business funds may be used for the down payment, closing costs, and reserves, provided that the borrower meets standard borrower requirements. However, on purchase transactions, borrowers must make the down payment with funds from their own resources.
Properties located in declining markets, as identified by the appraiser, require a 5% LTV reduction off the matrix maximum LTV (unless the LTV is 65% or less), effectively increasing the required down payment.
Yes, gift funds may generally be utilized toward down payment requirements. However, gift funds are generally not permitted for reserves.
Non-QM mortgages sought one day out of bankruptcy and/or foreclosure require a 30% down payment.
Down payment requirements for Non-QM loans typically range from 10% to 30%, though some lenders set a minimum threshold of 15% of the loan amount.
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