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”
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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% Down: VA 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% Down: FHA 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
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