How Much of a Down Payment is Required?

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In the current frenzied housing market, we are all aware that time is critical when someone is considering making an offer on a home so this seems to be an ideal time for a quick update. If Tyra Trump, a licensed Realtor, is showing a house to her clients that plan to owner-occupy it, she should be aware that, if her prospects are using Veterans Administration (VA) or USDA financing, zero down payment is needed. If they elect to use Federal Housing Administration (FHA), 3.50% is needed while conventional loans require 5% (which may be all gifted). When discussing a second home purchase, Ms. Trump needs to advise her prospects that a down payment of 10% is required. For an investment property, the minimum down is 15%. Please note that mortgage insurance (mi) is required, with the exceptions of VA (none), USDA and FHA (life of loan in most cases), on any loan with less than a 20% down payment. However, this may be averted in some cases, based on the borrower(s) qualifying, with a first and second mortgage combination; these loans are generally structured as an 80% loan-to-value (LTV) first with a 10% LTV fixed or variable rate second. This is also a very effective strategy to employ on a Jumbo deal so as to take advantage of conventional interest rates. This is not, in any way, intended as an all inclusive loan option menu. Rather, the purpose is to provide a high level overview of the most common financing strategies so that you may be better prepared to address your clients’ queries.

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