Many people, including first-time home buyers, envision purchasing a home and want to know their down payment options just like those deciding between a 3.5% down FHA, a conventional 97, or a zero down loan for eligible veterans when buying their home. Once the after-tax return alternative uses of that money exceeds your financing costs, putting little or no money down on a home becomes a very wise financial choice.
Financing up to 95 - 100% of the home's value helps you avoid liquidating assets to cover a down payment and possibly paying capital gains after liquidating. This financing strategy works off the basic principle of maximizing your “leverage”. This stratgy works great for some while for others the outcome may be different. Discuss the pros and cons with a professional tax advisor for an educated dcision. In the meantine, review several benefits described below.
Benefits of Low Down Payment Options
See how it helps if you have substantial liquid assets
Investment preservation strategy. Financing your home purchase to the maximum allowed, helps you keep your investment portfolio intact by avoiding liquidation of your assets to fund a down payment. We have loans based on your liquid assets of $500,000 or more ("click here and see liquid asset qualifier). There is no pledging or title change. Everything stays the same.
Increased potential tax deductions. By financing the entire purchase price of your home, you are able to increase the amount of deductible interest as a tax write-off. Capital gains tax is deferred when you don't liquidate your liquid assets and keep them invested.
Reduced up-front mortgage expenses. Getting a loan from a lender to cover the full purchase price means less up-front expenses or if you can reduce your down payment to a minimum of 10% on loans greater than $1.5M to avoid the requirement of paying mortgage insurance. A great way to get around the PMI problem is to get two loans.
Popular Down Payment Choices
The 90/10, 80/10/10, or a 75/15/10 are the most used down payment structures. The first and second number denotes the financing percentage and the second or last number is the down payment from the borrower. In each case above, they are 10% down jumbo financing. There is even a 95/5 or 5% down jumbo loan up to $1.5 million available in certain states. Check out the down payment on low doc loan products.
-- Example: 90/10
Location: San Clemente, CA
Purchase Price: $1,000,000
90% 1st mortgage - $900,000 - NOW 90% financing up to $2.5 million
10% down payment from borrower
-- Example: 80/10/10
Location: San Carlos, CA
80% 1st mortgage - $800,000
10% 2nd mortgage - $100,000
10% down payment - $100,000
Last updated: 3/1/2018
Yes, you saw that correctly. Currently, there are loan programs which require just 10-percent down up to $1.5 million* on primary residences and without PMI.
Additional terms: Loan repayment period is 30 years. Rate may be fixed for 5 years and then become adjustable for remaining 25 years or stay fixed for 30 years. There is no balloon payment or prepayment penalty. The annual percentage rate (APR) will vary based on borrower's credit scores & loan to value.
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Check local and state programs.
As an example, both the California Housing Finance Agency and the Connecticut Housing Finance Authority, offer help with the down payment and closing costs with second-mortgage assistance programs. Certain programs may zero in on specific areas in efforts to revitalize and offer incentives to career professionals who are employed by the city or country like a school teacher, police officer, or firefighter.
10% down payment on Jumbo Loans – 90% financing up to $2,500,000 with “full documentation”
now offered in: AZ, CA, CO, FL, OR, UT, TX, WA – Click on your state to see the additional rules.
Requirements: 680 credit score and additional conditions based on the loan program. Typically, you'll find the conditions to include having 9 - 12 months of the new mortgage payment, including taxes and insurance, in the bank or investment account as well as a debt to income ratios of 43 or less.
Buying a $5.7M home? Just 30-percent down is needed with a 740 middle FICO score and 12 months of reserves.
Review the credit scores necessary to obtain a jumbo mortgage and how much you'll need for a down payment.
With the various local grants, down payment assistance programs, and periodic lender specials, it is best to always check with an NMLS licensed loan officer for additional low down payment options in your state for potential savings.