How much of a Downpayment do you need?

by Tom Tousignant

in Blog, Home Buying, Mortgages

I got two funny phone calls today from Charlotte Real Estate Agents, both asking about down payments.  Since the mortgage crisis started three years ago, the biggest mis-information in the media has been concerning down-payments, with most news articles saying you need 25% or more for a down payment.

The first call went like this:

Caller: “Hi, I have a client who needs 100% financing?”

Me: “Are you a Real Estate Agent, and is your Client a Veteran, or buying a Rural Property?”

Caller: “I am a Realtor, and no, my Client is not a veteran and wants to buy a house in Charlotte”

Map of USA with North Carolina highlighted
Image via Wikipedia

Me: “Uh, sorry to break the news to you, but, you don’t have a ‘Client’, you have a renter that is saving money for a down payment”.

Next call, 10 minutes later:

Caller: “Hey, I have some clients looking to buy a home with a Jumbo Mortgage.  The  Seller works for a bank and told us the North Carolina passed a law that made it illegal to do a Jumbo Mortgage with less than 20% down.”

Me:  “Well, then, tell the seller to call the cops on me – I just closed a Jumbo loan last week without 20% down.”

Two extremes ends of the market, but both Real Estate Agents were fed bad information that was causing them to pass on bad advice.  Here is a basic guide to minimum down payments:

0% DownVA Loans are available for qualified Veterans through Guaranteed VA Loans.  In Charlotte, you can borrow up to $417,000 with no money down.

USDA Rural Housing Loans are available in qualified areas and for borrowers earning less than the maximum income amounts.

3.5% DownFHA Insured Mortgages are available for loans up to $303,750 in the Charlotte area, and in the outlying areas, they may be capped at $271,050.

5% Down:  With Private Mortgage Insurance (PMI), you can put as little as 5% down with a mortgage amount up to $417,000.  With only 5% down, you will have some type of Mortgage Insurance.

10% Down:  For loans up to $417,000, you can put down 10% and have Mortgage Insurance available.  Some highly qualified borrowers, buying highly qualified house, may be able to get a second mortgage or home equity line of credit and avoid PMI.  Second Mortgages are much more complicated than PMI, so they aren’t nearly the sure thing they were a few years ago.  However, they will save most home buyers money, so they are worth looking into.

For Homes prices above $438,000, buyers can avoid Jumbo Mortgages and keep the down payment to 10% if they can qualify for a second mortgage.  We do this by getting a FNMA maximum mortgage of 417,000 and a second mortgage for 10% with a 10% down payment.

At higher home prices, while not a law, you may need up to 20% down.  Jumbo mortgages are limited to 80% of the home’s appraised value.  Second mortgages can make up some of the gap, but jumbo mortgage lenders will not allow higher than 80% Loan to Value, and PMI is not available on Jumbo loans.

When you are buying a house, your down payment is the most critical financial decision you will make.  Knowing the minimum required down payment is a good place to start your home shopping

Enhanced by Zemanta

Comments on this entry are closed.

Previous post:

Next post: