The following information was compiled from various sources considered reliable by FiQuest Mortgage, but no guarantee can be made as to absolute accuracy.

Low Down Loans

Generally, whenever the downpayment is less than 20% of the purchase price, some form of mortgage insurance (MI or PMI) is required, see discussion on MI below.

Notes:
The available programs and rules for low down loans are constantly changing. Call or email us with information regarding your particular situation. Rates are as of 1/11/99 and are shown only to indicate the relative cost differential for the various low down categories, therefore no APR's are calculated. All of the rates were at zero points. Rates subject to change without notice.


Zero (0.0%) Down
"Buy Real Estate with Nothing Down!" is a catchy slogan on infomercials, but the reality is that very few lenders offer this type of loan program, and the rates tend to be considerably higher than the 3%, 5%, and 10% down programs. Veterans qualify for zero down loans via a Veterans Administration guarantee. These loans are for veterans only and there are a number of other restrictions. We will limit this discussion to non-government loans.

For a first time homebuyer, some lenders offer "collateralized" financing. You can put zero down, but 25% of the purchase price MUST be deposited in one of their Stock, Money Market or Time Deposit accounts. Usually, a relative would participate in this arrangement. The participant will continue to earn interest or dividends on their money, but they cannot withdraw it until the equity in the home reaches at least 20%. These are not cheap, and the pricing fluctuates depending on various factors. If you are not a first time homebuyer, one of the better programs is split into two loans, a 70% loan-to-value (LTV) first mortgage and a 30% LTV second mortgage. Example:

Mortgage

Loan-To-Value

Interest Rate

1st

70%

7.50%

2nd

30%

12.00%

The weighted average interest rate on this loan product, using the above rates, was 8.85% as compared to the 3% down loan which had an "all-in" rate of 8.25% (including MI premium) on that date. The loan amount can be either Conforming or Jumbo. The restrictions on this product are: No first time homebuyers. Borrowers must have FICO score of 680 or higher. Full documentation only.

Three (3%) Down
This program is offered by more lenders than the zero down loan. Normally, the downpayment must come from funds that you can document to have saved for at least 3 months, or it can come from a cash advance on a credit card (ordinarily not allowed) or a gift from a relative. These exceptions depend on the lender. To calculate your likely payments, use the FiQuest Mortgage Rate for Conforming Loans at zero points plus 1.0% for Mortgage Insurance. For example, if today’s conforming fixed rate was 7.25%, your 3% down rate would be a total rate of 8.25%.

Restrictions:  Cannot currently own other real estate. If first time homebuyer must take 1st time homebuyer training (correspondence class). Must also have 2 months PITI (housing payments) in reserves. Conforming loans only. Must have good credit, FICO score of at least 680. Full documentation only.

Five (5%) Down
This program is widely available, for both Conforming and Jumbo loans. See discussion below on Lender Paid MI, and Piggy Back Mortgages.

Restrictions:  Must have good credit, FICO score of at least 680. Must also have 3 months PITI in reserves. Full documentation only.

 

Ten (10%) Down
This program is widely available, for both Conforming and Jumbo loans. See discussion below on Lender Paid MI, and Piggy Back Mortgages.

Restrictions: May have lower credit, FICO score of at least 620. Must also have 3 months PITI in reserves. Can do as stated income (requires FICO score of at least 680), see section on low doc loans.

 

Mortgage Insurance
The higher the LTV (Loan To Value), the more you will pay for your loan. Put another way, the less of your own money that is on the line (down payment), the more you will be charged. Our purchase calculator has the appropriate rates built-in, just key-in your downpayment and it will calculate the MI payment (it assumes paying separately). This is the traditional method, and it allows loan agents to quote nice low loan rates, but you must remember to consider the cost of monthly MI when you budget the actual housing payments. As the equity builds in your house (to over 20%), you can ask to have the MI removed after at least two years have passed. If you already own property, and have little equity, various "High LTV" loan products are available both for pulling cash out, and for saving money on monthly payments.

Over the last five years, two new products have been introduced that expand your financing choices considerably. These two products are called: Lender Paid MI and Piggy Back Mortgages.

Lender Paid MI
Another way to pay for the MI is to have it included in your interest rate. Although this results in a higher note rate, you are only making one payment, and the whole thing counts toward your mortgage interest deduction (verify this with your tax advisor). The negative aspect is that you cannot eliminate the mortgage insurance without refinancing.

Piggy Back Mortgage
This involves splitting the loan into 2 parts. You get a first mortgage at 75% Loan-To-Value (LTV) for Conforming Loans or 80% LTV for Jumbo loans. The second then makes up the difference. Both loans fund at the same time, called a concurrent close. You get them both from FiQuest Mortgage. Second Trust Deeds or mortgages (Lines of Equity, or fixed rate/amount loans) always carry higher interest rates than first mortgages, and are generally available only in terms shorter than 30 years.