Buying a house without putting 20 percent down
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By Scott Sheldon  February 2, 2012 11:47 am

Q: Can I buy a house today without 20 percent down?
A: Yes you can buy a house today without 20 percent down.
The old mantra of putting 20 percent down to purchase a house is outdated.

The majority of borrowers today purchasing real estate do not have 20 percent down. In fact, very few actually have 20 percent down to purchase a primary residence.

The federal government realized a couple of years ago endorsing flexible home ownership options to promote growth in the housing sector made a lot of sense. As such, we have government home loan programs available to people looking to purchase a home even though they are short on cash.

Q: How specifically can I purchase a house without 20 percent down?
A: The most important thing here is to get your financial house in order. This means making sure you have good credit by paying bills on time and not having high amounts of revolving monthly debt.

Consider what potential down payment options you have.

Is there a possibility you might be able to get a gift from a friend or family member? How stable is your job? Are you hourly or salary?

Have you been in your job field the last two years?

If not, make a chain of your job history for the mortgage lender and aid them in the process of helping you purchase a home.
Once you have your financial house in order, you can then look at loan programs. Home mortgage lenders today typically offer a variety of flexible, less than 20 percent down, home buying options.

Consider the following loan types:
• Conventional fixed-rate mortgages - Offer down payments as little as 5 percent down. The program also allows for gift money…so long as 5 percent of the funds come from your own.
• FHA Loans - Offers down payments as little as 3.5 percent down, as well as flexible credit qualifying guidelines. This particular program even allows for non-occupant co- borrowers, i.e. “co-signers.” Had a previous foreclosure or even a bankruptcy? How about a short sale? You can still buy a house with less than 20 percent down, even with one of these credit challenges.
• USDA Loans - Offers no money down, with flexible credit qualifying, so long as you’re purchasing a property in a rural area.
This program also allows for seller concessions for closing costs and is the lowest cost mortgage insurance loan available.
• Homepath Loans - Offers 3 and 5 percent down programs for Fannie Mae on properties only. This program actually allows for no mortgage insurance and no appraisal. Fannie Mae considers the purchase price to be the barometer of the evaluation.

Q: So if I’m buying a house with less than 20 percent down, what’s the catch?

A: The catch is the loan needs to have an impound account - otherwise known as a monthly escrow account for property taxes and insurance. This is a requirement on all loans sold to Fannie Mae and Freddie Mac with less than 20 percent down. The other requirement is the loan needs to have mortgage insurance. Now this is where things start to change.

• Conventional loans have a monthly mortgage insurance premium, which is calculated differently depending on the loan amount, loan-to-value and borrower’s credit score.

• FHA loans have two forms of mortgage insurance: the first one is called an upfront mortgage insurance premium (UFMIP).
It’s calculated on the loan amount and finance over the life of the loan. This can be financed and paid separately at the close of escrow. The other form of mortgage insurance is a monthly M. I, which is a factorization of the loan amount before the upfront mortgage insurance premium is factored in.

Note: This can be removed after 60 months and there is 20 percent equity.

• USDA Loans also have two forms of mortgage insurance. There is an upfront mortgage insurance paid and financed over the life of the loan, as well as a monthly factorization based on the loan amount before the upfront mortgage insurance is calculated.

So basically if you’re putting less than 20 percent down, you can expect your total house payment to be higher in most cases then if you have 20 percent down or more when purchasing a home.

Q: So if I have to have mortgage insurance, wouldn’t it make more sense to wait to save for 20 percent down?

A: Our opinion: no. Waiting to save for 20 percent down isn’t necessarily the smartest choice.

Consider the historically low mortgage rates. Depending on how long it takes you to save for 20 percent down, it might take four years.
During that four years, interest rates could rise and you would effectively be paying in four years with 20 percent down what you could be getting today with a 30-year fixed-rate mortgage near 4 percent.

Another thing to consider is the fact mortgage insurance is not necessarily going to be on that mortgage for 30 years. In most cases, a 20 percent equity other than FHA loans, you can get the monthly mortgage insurance removed from your total house payment, which could easily save you thousands of dollars over time.

Q: What do I have to do to get started?

A: This is a three step process:
1. Begin a secure online pre-qualification today to see if you can initially qualify. See if it makes sense to start gathering financial documentation or do a credit check. It takes less than a minute and you’ll get an answer quickly.

2. Gather together your financial documentation. A detailed list of the items that are needed for mortgage loan financing can be found at

3. Apply with a mortgage lender. That’s right. Let the mortgage lender pull a copy of your credit report and determine how much you can qualify for based upon he or she reviewing your financials and credit.

This is, in essence, a preapproval and this is what you’ll need to begin looking at houses and subsequently be in a position to make an offer on the property you might like.

Homes have never been more affordable and mortgage rates are at extreme market lows. Secure an easy fixed rate mortgage and see how easy the process can be. Read more at:

Scott Sheldon is an FHA specialist, a local lender who helps with refinancing and purchasing, and a Senior Mortgage Loan Originator with over six years of mortgage experience. He can be reached at (707) 217-4000.

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