A realtor colleague of mine was recently relating his shock to me about how often he is talking to renters who aren’t considering buying real estate because they are under the impression that a purchase requires a 20% down payment. This idea couldn’t be further from the truth, and this message is sadly often relayed on TV from uninformed talking heads and people who are obviously not real estate professionals. I’m here to tell you the truth, dear blog reader! Isn’t that why you read blogs?!
The truth is that just about every borrower in the market could qualify to put less than 20% down if they chose to. The FHA loan is one of the easiest loans to qualify for and it isn’t just for first time home buyers, nor is there an income cap on this program… and it only requires a 3.5% down payment, but I digress… let me break this down for you in internet-friendly bullet point fashion.
PRIMARY RESIDENCE LESS THAN 20% DOWN
- THE FHA MORTGAGE: The trusty FHA — where would the world be without FHA mortgage insurance? I hope none of us ever have to find out. The FHA loan is the easiest of all loans to qualify for: it requires the least amount of cash, the least amount of credit history, allows for the highest debt to income ratios (which means “least amount of income”), etc. etc. The FHA loan requires a minimum cash contribution from the buyer of 3.5% of the purchase price, has some of the lowest rates in the market, and carries an annual mortgage insurance policy of 1.15% of the loan amount per year/paid monthly.
- 3% DOWN “community” Mortgages: Private mortgage insurance is back in Portland. We’re on the list of stabilized markets according to the PMI actuary peoples. This means that if you have a good credit score and some cash reserves (retirement funds qualify for reserves), you can actually buy a house with only 3% of the purchase price required from the buyer. PMI also allows for 5% down, 10% down and 15% down. The more you put down, the lower the cost of that MI policy. For an idea about how much each down payment costs in monthly MI please see my “mortgage calculator reference page” This is for what is called “Borrower paid MI” which means the borrower pays for the mortgage insurance a little every month embedded into the monthly payment.
- LPMI / Lender Paid Mortgage insurance: You can finance up to 95% of the value of a property with LPMI- which means that you can have the lender pay for your mortgage insurance. This is reflected in an above market mortgage rate, but for many this approach makes a TON of sense. Its better for shorter term holds or for those who might not qualify to deduct the mortgage insurance against their taxes. The LPMI gives the borrower a better payment than BPMI, and also a better tax deduction.
- Zero Down loans: The USDA loan and the VA loan are the only remaining zero down loans in the marketplace (some credit unions have some very limited zero down offerings but I can’t really speak to that as they aren’t available for me to offer). See my post on no money down loans for real estate in Oregon and Washington for details on how to qualify.
- The Homepath loan: The homepath loan allows for 3% down, and has NO mortgage insurance! It also allows for 10% down on second home/vacation homes as well as 10% down for Investment property… all with no mortgage insurance! See my post on foreclosure financing loans for more information on the Homepath Loan.
So, what have we learned today? Stop renting! Call your realtor, and apply for a mortgage today!