Down Payments?
Minimums by Loan Type in a Low Interest World
By Therese A. Hartmann
With rates lower than I’ve seen them in over 20 years, it’s no surprise that firsttime home buyers are coming out of the woodwork. Many are gathering a down payment of 20 percent, not realizing there are many options for them to jump into the real estate game with far less. This is especially true with a primary residence which is what I’ve listed below. This is a quick and dirty guide for down payments using the most popular loan types. Keep in mind that this is a general guide and your specific situation, including credit score, employment, reserves (for taxes, insurance, principal and interest) etc., might change the dynamics. Conventional Loan – Some lenders ask for 3 percent and some for a minimum of 5 percent of borrower’s own funds on a primary residence. Must have reserves and mortgage insurance is required if there is less than 20 percent down. Same rates are available on second homes. Conventional loans work for investment properties as well and, depending on credit score, might require as little as 15-25 percent down. 16
FHA Loan – You’ll need a minimum of 3.5 percent down and while rates are competitive, there is an up-front mortgage insurance premium as well as a .85 percent monthly premium that stays for the life of the loan. FHA loans are not eligible to be used for second homes but you can purchase up to four units if you owner-occupy one of the units. VA Loan – You won’t need a down payment but will require a Certificate of Eligibility and will pay a hefty funding fee. VA loans aren’t available for second homes or investment properties. You’ll also need to plan for closing costs on top of your down payment. These fees, which can run 3-4 percent of the purchase price of the home are sometimes considered “hidden” fees. This is where a real estate agent can help. They typically can get you a cost sheet of expected fees associated with buying a home. Likewise, a loan consultant can provide an estimate for loan-related fees. So, why wait? Go ahead and get in the game!
OM — August 2020
Therese A. Hartmann has 20 years’ lending experience. She is a Licensed Broker, California Dept. of Real Estate #01048403, NMLS # 298291, affiliated with C2 Financial Corporation. For a free consultation, call Therese today at (805) 798-2158.
