Non-QM Guide

Non-QM Down Payment Guide:
How Much Do You Really Need?

Non-QM loans require more skin in the game than conventional financing. Down payments range from 10% to 30% depending on the program, your credit score, and the property type. Here's the full breakdown.

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✓ As low as 10% down✓ Gift funds accepted✓ Reserves 6 to 12 months✓ Score impacts LTV

The Basics

Why Non-QM Requires More Down Payment

Conventional loans backed by Fannie Mae and Freddie Mac allow as little as 3 to 5% down because the government-sponsored enterprises absorb much of the default risk through mortgage insurance and securitization standards. FHA goes even lower at 3.5%. Non-QM loans are funded by private investors without government backing, which means the lender bears the full default risk. To manage that risk, Non-QM programs require higher equity positions, typically 10 to 30% down depending on the program, borrower credit profile, and property type.

The additional down payment isn't arbitrary. It serves two purposes: it reduces the lender's exposure if the property must be sold after default, and it demonstrates the borrower's financial commitment and capacity to save. Higher down payments also unlock better pricing, putting down 25% instead of the minimum 10% can reduce your rate by 0.25 to 0.50% on many Non-QM programs. Understanding the interplay between credit score, down payment, and program type is essential to structuring the best possible loan.

10%

Lowest Non-QM minimum

20%

Most common requirement

30%

Foreign national maximum

6 to 12

Months reserves (PITI)

Program Breakdown

Down Payment Requirements by Non-QM Program

Each Non-QM program has different down payment minimums based on the risk profile of the income documentation method and borrower type. The table below shows typical requirements for primary residence purchases. Second homes and investment properties generally require 5 to 10% more down than the figures shown.

Program	Min. Down	Notes
Bank Statement	10%	10% at 680+ credit. 15 to 20% at 620 to 679. Investment properties 20 to 25%.
Profit & Loss	10%	Similar structure to bank statement. CPA-prepared P&L required for verification.
1099 Only	10%	10% at 680+ credit. Uses 1 to 2 years of 1099 forms. Same LTV tiers as bank statement.
Asset Depletion	20%	Higher minimum reflects qualification method. Assets must be liquid and verifiable. Some programs allow 15% at 720+.
Foreign National	20 to 30%	20% for second home, 25 to 30% for investment. No U.S. credit, so equity is the primary risk offset.
ITIN Loans	10 to 20%	10% at higher credit tiers with strong alternative credit. 15 to 20% more common.
Recent Credit Event	20 to 25%	25% if within 12 months of event. 20% at 12 to 24 months. Higher down offsets recency risk.
DSCR (Investor)	20 to 25%	Property cash flow qualifies. 20% at 700+ credit, 25% at lower scores.

Credit score directly affects your down payment

The minimums above assume the best-case credit score for each program. If your credit score is at or near the program minimum, expect the lender to require 5 to 10% more down than the lowest tier. A 680 score on a bank statement loan unlocks 10% down, while a 640 score on the same program may require 20%. Every credit tier shift changes your required equity position.

After Down Payment

Reserve Requirements: What You Need Beyond the Down Payment

Non-QM lenders don't just look at your down payment, they also require reserves, which are liquid assets remaining after closing. Reserves are measured in months of PITI (Principal, Interest, Taxes, and Insurance). If your total monthly housing payment is $3,000, one month of reserves equals $3,000 in accessible funds.

Program	Typical Reserves	Details
Bank Statement / P&L / 1099	6 months	6 months PITI for primary. 6 to 12 months for investment. Higher at lower credit scores.
Asset Depletion	Inherent	Assets used for qualification naturally satisfy reserve requirements. Remaining balance must cover 6+ months.
Foreign National	12 months	Higher reserves offset the lack of U.S. credit history. Funds can be held in foreign accounts on some programs.
Recent Credit Event	6 to 12 months	12 months if within 12 months of event. 6 months at 24+ months seasoning. Demonstrates payment sustainability.
DSCR (Investor)	6 months	6 months PITI per property. Counts against all financed properties in some cases.

What counts as reserves?

Checking accounts, savings accounts, money market funds, and investment accounts (stocks, bonds, mutual funds, typically counted at 60 to 70% of value) all qualify as reserves. Retirement accounts (401k, IRA) are usually counted at 60% of vested balance. Cash value of life insurance policies may also qualify. Real estate equity and business accounts generally do not count unless specifically permitted by the lender.

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Fund Sourcing

Where Your Down Payment Can Come From

Non-QM lenders require full documentation of the source of your down payment funds. The money must be traceable and verified, this isn't optional. Understanding what's acceptable before you apply saves time and prevents surprises during underwriting.

Acceptable Sources

Personal savings and checking accountsMust be seasoned (in the account for 60+ days) or fully documented with paper trail.
Gift funds from family membersGift letter required. Some programs require a minimum borrower contribution (e.g., 5% of purchase price from own funds).
Sale of existing assets (stocks, property)Must document the sale and deposit. Large recent deposits require full paper trail.
Business accounts (if sole proprietor)Must demonstrate the withdrawal doesn't impair business operations. Documentation of business ownership required.

Typically Not Acceptable

Unsourced cash depositsLarge cash deposits without documentation of origin will be excluded from available funds.
Borrowed funds (personal loans, credit lines)Down payment must come from equity, not debt. Borrowed funds don't count.
Cryptocurrency (on most programs)A few lenders accept crypto, but it must be liquidated and seasoned before closing. Most programs exclude it entirely.
Gift funds from non-family membersMost Non-QM programs restrict gifts to immediate family (parents, siblings, spouse). Some extend to domestic partners.

Common Questions

Non-QM Down Payment FAQ

Generally no. The lowest down payment available on mainstream Non-QM programs is 10%, and that requires a 680+ credit score on income-based programs (bank statement, P&L, 1099). Unlike FHA (3.5%) or conventional (3 to 5%), Non-QM lending doesn't have government backing to support low-down-payment structures. The 10% minimum is already aggressive for the non-agency market, most programs cluster around 15 to 25% as the standard requirement.

Yes, significantly. Non-QM rate sheets are heavily tiered by LTV. Moving from 90% LTV (10% down) to 80% LTV (20% down) can improve your rate by 0.25 to 0.50%. Dropping to 75% LTV (25% down) unlocks another tier. On a $400,000 loan, that 0.50% rate improvement saves roughly $130/month or $47,000 over 30 years. If you have the funds, putting down more than the minimum is one of the most effective ways to reduce your total loan cost.

It depends on the program. Many Non-QM lenders require a minimum borrower contribution, typically 5% of the purchase price from your own verified funds, with the remainder eligible as a gift. Some programs allow 100% gift funds if the borrower meets higher credit score thresholds (700+). Gift letters, donor bank statements, and transfer documentation are always required. Mortgages by Channing will tell you exactly which programs allow full gift funding for your credit profile.

The higher down payment requirement for foreign national borrowers compensates for the absence of U.S. credit history and the additional complexity of verifying foreign income and assets. Without a domestic credit profile, the lender's primary risk mitigant is the borrower's equity position. A larger down payment ensures that even in a declining market, the lender's exposure remains manageable. It also demonstrates the borrower's financial capacity and commitment to the property.

No. The down payment is the equity you bring to the transaction, it reduces your loan amount. Reserves are separate funds you must have remaining after closing, they are not spent at closing, they simply need to exist in accessible accounts. A program that requires 20% down and 6 months reserves means you need 20% of the purchase price for the down payment, plus enough liquid assets to cover 6 months of mortgage payments after the transaction closes. Both requirements must be met independently.

Yes, proceeds from the sale of an existing property are an excellent source of down payment funds. You'll need to provide the closing statement (HUD-1 or settlement statement) from the sale, and the funds must be deposited and traceable in your bank account. If you're selling and buying simultaneously, some programs allow the sale proceeds to be wired directly at closing. Mortgages by Channing can structure the timing to ensure the funds meet documentation requirements. Learn more about how Non-QM lending works.

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