March 29, 2017
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Real Estate & Business

Scott Sheldon
Equity need for mortgage less than you think
February 24, 2017

Most people will tell you that you must have excellent credit and a big down payment to secure a larger mortgage. The reality is that while having a big chunk of cash to put down on a house is nice to have, it is not always an absolute requirement. 

Let’s take a look at the information you should know if you are looking to take on a large mortgage. This post is especially relevant for individuals looking to buy in high-cost areas, including Sonoma, Marin, San Francisco and Alameda counties, which are notoriously high-priced counties in California. In these counties, the maximum loan limit ranges anywhere from $595,000 – $729,500 and fall within acceptable lending loan limits that do not require a large down payment. Any loan up to the maximum county loan limit can qualify for only 3.5 percent equity in down payment on an FHA loan.

Jumbo loans exceed the maximum county loan limits and are not bought and sold every day to Fannie Mae and Freddie Mac. Jumbo loans do require significantly higher credit scores, typically 700 or above, and require at least 10 percent equity in down payment. Keep in mind that any loan with less than 20 percent equity in the property will become subject to including a monthly mortgage insurance amount.

Another program in the marketplace known for having low down payment requirements are VA loans. VA loans are available to veterans, active duty service members, National Guard members and reservists who meet the requirements of the Department of Veterans Affairs and have acquired a Certificate of Eligibility from the VA or their lending office. VA loans will also go up to the maximum county loan limit and can even go up to or above $1 million home values. 

The VA loan guidelines make down payment pricing very interesting; the person receiving a VA loan can put down a mere $50 for every one thousand dollars financed. For a loan in the $1 million-dollar range, you could be paying as little as $50,000 for your down payment.

The idea that you need a big down payment in order to secure a larger mortgage size is simply not true. FHA loans do require mortgage insurance premiums and VA loans have a guarantee fee which will increase your closing costs but your down payment will remain minimal. VA mortgages by and large are one of the best low-cost high-buy in terms of power available in the marketplace.

Acceptable sources of down payment funds can include:


• Gift funds from a relative;


• Selling of personal property that can be documented and supported by third-party value pricing (i.e. Kelly Blue Book for a car sale);

• Withdrawing from retirement funds – many retirement accounts have provisions that allow for borrowing funds for a down payment to purchase a primary home

You cannot use your income as a form of assets. Banks want to see that you have the ability to save money up on your own volition. You cannot use money from your paycheck that you deposited 5 minutes ago as a down payment because the funds are not considered “seasoned.” 

In order for these funds to be considered seasoned, these funds must have been in your accounts for the last 60 days or more to show that the money is being “saved.”

If you are looking to buy a house, do some research. Figure out how much cash you really have by working with a lender and discovering what you qualify for now. Work with that lender and develop a savings plan to help you accomplish your goal of qualifying for your first mortgage or improving your current mortgage and all in all bettering your financial situation.


Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at