Down Payment by Program and LTV
Primary Residence Down Payment
At 85% LTV (15% down):
Available to 660+ credit borrowers on bank statement, 1099, and asset utilization programs. Best for borrowers preserving capital or investing the down payment differential.
At 80% LTV (20% down):
Available across all programs at 640+ credit. More common program structure. Lower rate tier than 85% LTV. Reserve requirement is 3 months PITIA (vs 6 months at 85% LTV).
At lower LTV (25–30%+ down):
Higher down payment reduces the loan amount, improving DSCR ratios for borderline DSCR deals, lowering DTI, and accessing better rate tiers. Investors sometimes put 25–30% down on primary residences to optimize total cost.
Investment Property Down Payment (DSCR)
Standard DSCR (≥ 1.00): 20% minimum down (80% LTV). 660+ credit.
No-ratio DSCR (0.75–0.99): 30% minimum down (70% LTV). 700+ credit.
DSCR investors making strategic decisions between 20% and 30% down should model the DSCR implications of each — additional down payment reduces loan amount and P&I, which improves DSCR and potentially moves a no-ratio deal to standard (reducing reserve requirements from 12 months to 3–6 months).
The Total Capital Requirement: Down Payment Is Not the Full Number
The mistake most first-time Non-QM applicants make: budgeting for the down payment and assuming that covers everything. The full capital requirement has three components:
1. Down payment: LTV-determined. 15–30% depending on program and credit.
2. Closing costs: Typically 2–3% of the loan amount. Covers title, appraisal, lender fees, and prepaid items (property tax escrow, insurance prepayment).
3. Post-close reserves: 3–6 months of PITIA must remain liquid in your accounts AFTER closing. This is separate from down payment — not applied to any cost at closing, just required to remain available.
Example — $485,000 SFR purchase, bank statement loan, 80% LTV:
| Item | Amount |
|---|---|
| Down payment (20%) | $97,000 |
| Estimated closing costs (2.5% of $388,000 loan) | $9,700 |
| Reserves (4 months × $2,900 PITIA) | $11,600 |
| Total capital required | $118,300 |
An applicant who has $97,000 available misses the full requirement by $21,300. Confirm the complete number before identifying a property.
No Mortgage Insurance — The Down Payment Tradeoff
Conventional loans below 20% down require PMI (private mortgage insurance), adding $100–$350/month in cost depending on loan amount. FHA loans add MIP regardless of down payment.
Non-QM loans have no mortgage insurance at any LTV — including 85% LTV (15% down). This means:
Non-QM at 85% LTV vs conventional at 85% LTV:
Conventional: Rate + PMI cost. Non-QM: Rate (higher) + no PMI.
For example: Conventional at 7.00% + $200/month PMI on $400,000 loan. Non-QM at 8.50% = $494/month more. Non-QM has no PMI — but the rate premium exceeds the PMI savings at most price points.
The PMI elimination doesn’t make Non-QM cheaper than conventional — the rate premium is larger. But it’s a meaningful structural difference for borrowers who plan to hold at high LTV.
Down Payment Sources
Eligible: Personal checking and savings, brokerage account proceeds, retirement account proceeds (with documentation of distribution), proceeds from sale of prior property.
Typically not eligible for Non-QM down payment:
Gift funds from family — most Non-QM programs require down payment from borrower’s own verified funds. Confirm with your loan officer.
Documentation: 2 months of bank statements showing the down payment and reserves present in verifiable accounts. Large recent deposits may require source documentation (wire transfer confirmation, sale settlement statement, etc.).
FAQ
What is the minimum down payment for a Non-QM loan?
15% for primary residence (85% LTV) at 660+ credit. 20% is standard across most programs. Investment property DSCR: 20% standard, 30% for no-ratio.
Is there PMI on Non-QM loans?
No — never. No mortgage insurance at any LTV on any Mbanc Non-QM program.
Can gift funds be used for Non-QM down payment?
Most Non-QM programs require down payment from borrower’s own funds. Confirm with your loan officer — gift funds are generally not permitted.
Not a commitment to lend. Mbanc NMLS #38232 | Equal Housing Opportunity Lender
Increasing Down Payment as a DSCR Strategy
For borderline DSCR deals, increasing the down payment is often more cost-effective than other strategies:
Scenario: Property has DSCR of 0.94 at 80% LTV (standard requirement of 1.00 not met). No-ratio requires 70% LTV and 30% down. But there’s a middle path:
Instead of jumping from 20% to 30% down, model what happens at 25% down (75% LTV):
P&I drops proportionally with the smaller loan. DSCR may reach the 1.00 threshold at 75% LTV. Standard program at 75% LTV with 25% down — less capital than the full 30% while achieving standard program terms.
This optimization (modeling multiple down payment scenarios) is part of the Day 1 loan officer consultation for every DSCR deal.
Down Payment and Rate Interaction
Higher down payment → Lower LTV → Better rate tier for bank statement and 1099 programs.
Rate tiers:
– 85% LTV: highest rate
– 80% LTV: moderate
– 75% LTV: better
– 70% LTV: favorable
– 65% LTV: best
The rate improvement from 85% LTV to 80% LTV (putting 5% more down on a $500,000 purchase = $25,000 additional capital) is typically 25–50 basis points. On a $400,000 loan, 25 bps saves $83/month — the $25,000 break-even takes 25 years at that rate. For short-hold strategies, maximum LTV is usually the right choice. For 10+ year holds, a modest additional down payment may be financially rational.
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How Down Payment Affects DSCR Ratio
For DSCR investment property, increasing the down payment is a direct DSCR lever. Each additional dollar of down payment reduces the loan amount, which reduces P&I, which reduces PITIA, which improves DSCR.
Sensitivity analysis — $310,000 property, $2,100/month rent, 8.25% rate:
| Down | Loan | P&I | PITIA (est.) | DSCR |
|---|---|---|---|---|
| 20% ($62K) | $248,000 | $1,864 | $2,216 | 0.95 |
| 25% ($77.5K) | $232,500 | $1,748 | $2,100 | 1.00 |
| 30% ($93K) | $217,000 | $1,631 | $1,983 | 1.06 |
A 5% additional down payment ($15,500 more on this $310,000 property) moved DSCR from 0.95 (no-ratio) to 1.00 (standard). A 10% additional down payment reached 1.06 (solid standard). For DSCR investors working borderline deals, modeling the down payment sensitivity before making an offer identifies the exact capital requirement to reach standard program terms.
Non-QM Down Payment: Comparison to Conventional
The Non-QM 15% minimum (vs conventional’s 3–5% minimum) creates a meaningful capital difference:
On a $500,000 purchase:
Conventional FHA: $17,500 down (3.5%). Plus MIP.
Conventional: $25,000 down (5%). Plus PMI below 20%.
Non-QM: $75,000 down (15%). No PMI — ever.
The conventional lower down payment is available for W-2 borrowers who can qualify. Self-employed and complex-income borrowers who can’t qualify conventionally don’t have the 3–5% option regardless — Non-QM’s 15% is the viable starting point.
The no-PMI feature of Non-QM means the monthly payment comparison isn’t simply about rate. Conventional PMI of $150–$350/month adds 2–4 percentage points to the effective mortgage cost for borrowers under 20% down. Non-QM at 15% down has no PMI — the rate premium is a fair trade for most borrowers who can’t access the conventional program anyway.
Not a commitment to lend. Mbanc NMLS #38232 | Equal Housing Opportunity Lender
Large Down Payments as a DSCR Strategy for Out-of-State Investors
For out-of-state DSCR investors purchasing in markets with higher tax rates (Texas, Florida), a larger down payment is often the most capital-efficient path to standard DSCR:
Dallas TX example, $280,000 SFR, $2,050/month rent:
At 20% down ($56,000), 80% LTV ($224,000 loan): DSCR 0.89. No-ratio. Requires 30% down for no-ratio = $84,000.
At 25% down ($70,000), 75% LTV ($210,000): DSCR 0.95. Still no-ratio.
At 30% down ($84,000), 70% LTV ($196,000): DSCR 1.01. Standard!
The extra $28,000 in down payment (from 20% to 30%) moves from no-ratio (12 months reserves, 700+ credit) to standard (6 months reserves, 660+ credit). Reserve requirement drops by 6 months ($2,200/month × 6 = $13,200 freed capital). The $28,000 additional down produces $13,200 in reserve savings plus improved program terms.
Not a commitment to lend. Mbanc NMLS #38232 | Equal Housing Opportunity Lender
Mbanc NMLS #38232 | Equal Housing Opportunity Lender
