When the honeymoon of house hunting fades, you're left with the daunting task of financing. And for many, coming up with 20% for a down payment can feel impossible.
Luckily, there are several ways to get a mortgage with a low down payment—even when you're buying a luxury property. But how exactly do you do it?
That's what we're here to discuss.
We'll show you three ways to bridge the gap between conventional and jumbo loan offerings so you can secure a mortgage tailored perfectly to your individual needs.
Ways to Secure a Mortgage Loan With a Low Down Payment
It's not uncommon for potential borrowers to attempt to secure a low down payment for their mortgage loan. After all, 5% or even 10% down is a much more attractive option than the standard 20%.
And let's face it, we all have reasons for wanting to conserve our cash reserves rather than deplete them, whether we're changing jobs, growing our family, relocating, or something else.
But when you approach your lender, they'll typically offer three different types of mortgage products, all of which usually require full documentation (full doc).
That simply means you'll be required to provide evidence of your ability to repay the loan, such as:
- Proof of income (W2s, pay stubs, tax returns, etc.)
- Steady employment
- Healthy credit score and history
- Low debt-to-income ratio (DTI)
- Thorough asset documentation
What they don't tell you, though, is that there are ways to move from a conventional loan to a jumbo loan without having to break the bank by supplying a massive down payment.
So how do you maximize your borrowing power while still minimizing your out-of-pocket amount? Well, we have three potential options for you.
Option 1: Try for a 95% LTV Conventional Loan
While conventional loans aren't government-backed, they still follow the rules and regulations set by the Federal Housing Agency (FHA) along with Fannie Mae and Freddie Mac to determine whether the loan is conforming or non-conforming.
That means each state and county will have specific borrowing limits. As of 2023, these limits raised to $726,200 for most of the US and $1,089,300 in high-cost areas.
That also means that as long as you're within those limits, you can go up to 95% of the purchase price and still get a Fannie Mae or Freddie Mac loan, just like government-backed loans.
So you only have to come up with a little over $36,000 for a $726,200 home versus $145,240.
While 95% LTV financing is attractive to many borrowers, there are some important things you should know.
- Most lenders will require you to carry private mortgage insurance (PMI) until your LTV drops below 80%.
- Qualification requirements are usually higher for this type of loan.
- The type of property may be limited.
Option 2: Get a Combination Loan
Now, for those who are just outside the conforming loan limit but don't want to fully commit to a jumbo loan, you could opt for a combination loan.
This is where you take the max loan limit for a conventional conforming loan and piggyback that with a home equity line of credit (HELOC).
So essentially, you can still get up to 95% financing on a $1.2 million property for most of the US and a $1.5 million for high-cost areas as long as you can max out your line of credit (usually limited to $500,000).
By doing so, you will benefit from everything conventional loans have to offer, such as lower interest rates and an easier qualification process.
Just remember that HELOCs have special requirements that may add some additional costs to your loan.
Option 3: Secure a Low Down Payment Jumbo Loan
If your purchase price is out of range for conventional and combination loans, you'll need to get a jumbo loan.
While many jumbo loans require a 20% down payment, there are programs available that will let you go as low as 5% or 10% down.
For example, there are certain situations where you can obtain a 10% down jumbo loan up to a $3 million purchase or a 5% down on a $2 million property.
Just remember that these programs will come with stricter requirements. Ensure you take the time to find a lender that will work with you to get the best rates and terms on your jumbo loan.
Innovative Lending Solutions For Everyone
At Modern Day Lending, we understand that everyone's needs are unique, which is why we're dedicated to finding the right lending solution for your financial situation.
Unlike traditional lenders, we aren't limited to a specific range of loan programs and products. We're able to actively search through a vast network to find you the best rates and terms for your loan.
Our team of experienced mortgage professionals works closely with you throughout the entire loan process to ensure that you're never in the dark when it comes to exploring your lending options.
Reach out to one of your experts and see what low down payment options work best for you.
