Is it still possible to get a mortgage with less than 20% down payment?

[Brenda]

Me and my husband are planning on putting our house on the market within the next couple of months. However, we are unsure we would be able to get a new mortgage with the current financial climate. I’ve heard a lot about people having a hard time getting mortgages with good credit and even with a 20% down payment. Is this still the case? Anyone here recently get a mortgage? How was your experience?

My husband has a solid work history and excellent credit, but we will not have a 20% down payment. We don’t want to sell our house and end up with no mortgage to purchase a new house with. I'd appreciate any input on this issue. Thank you.

[BTC]

I had heard this as well, but it is not the case. I am about to buy another house also. FHA requires 3.5% down. I believe other standard loans require 4%. In both cases you will have to pay PMI. I believe you can only avoid PMI by putting 20+% down.

Anyway, no, you don't need 20%.

[thegreattwizz]

Short answer is no, especially if you have good credit and the income to support it. I'll run you through the scenario prior to our deciding to move to QV, when we were going to purchase in Monmouth County with an FHA loan.

FHA limits are generally set by county, in our case, it was $625k. That said, depending on which bank you deal with, they set a 'floor' for the credit score. Wells was 580 or 600. They'll let you have a mortgage payment of 36% of your gross monthly income, or a 'complete' payment (including PMI and taxes) of 42%. On this amount, with the comparatively low taxes, the 42% calculation worked to our favor. This required us to have 3.5% down, plus closing costs. I had a few old items on my credit, and our loan offer was contingent on me bringing payment for them to the closing table. Not a problem. However, I can't be happier for not going down that path and making the move to QV.

For Phila county, I believe the current limit is 420k. With an FHA loan, you are required to keep the PMI for the life of the loan, thus requiring you to refinance when you get below the 80% threshold. If you have STELLAR credit, there are conventional products that will allow the PMI to drop off automatically after you're below 80%.

I'm not a mortgage professional, but I've been involved in credit/finance for nearly 15 years, worked with a lot of mortgage folks (both before and after it was the place to be), and think I have a pretty good handle on it.

My best advice: work with one Realtor you absolutely trust both for your listing, and for your new purchase. This has to be a person for whom you'd trust the way you trust your husband, mother, father, best friend, etc. They could wholly eff up your life, or lead you down the path to bliss. Follow their advice as to what is right for your individual situation, and remember that a 'pre-qualification' means absolutely NOTHING. Ask the question 'Based on our finances and credit, what will prohibit us from closing?'. There could be a $200 verizon bill from 6 years ago you never knew about, and the bank will balk and walk away from the table. Cross your 't's', dot your 'i's'. And know what your credit contains.

Folks with good credit who can't get a mortgage with 20% cash down have other issues at hand, and it isn't usually the banks fault, it is simply the lowering of the 'risk bar' that's been going on for a few years now. If it is a solid property, valued properly, and you can afford it, you're golden. The issue people run into in your situation is that unless BOTH mortgage payments are under that 36%-42% gross income number, they won't let you close on a new house until you close on the first one you're selling.

Good luck with your search for a new home!

[JakeL]

As thegreatwizz mentioned, it comes down to the numbers. I have an FHA loan that was only 3.5% down. However, living in Brewerytown, the house was very affordable, so your mileage may vary.

Usually, when a current homeowner is looking to sell one property and move into another, the sale of the new property can be contingent on selling your old house.

Your best bet is to a call a mortgage lender and see what products they offer, as they may vary a bit by bank.

[bobvila]

one clarification - with a FHA loan, you can drop the mortgage insurance after 5 years or once you reach the lower of 78% of the purchase price or current appraised value. unless you've been putting extra money towards principle, this will take longer than 5 years anyway. or you can refinance out of it like thegreatwizz said.

one other caveat to FHA loans - you have to get the mortgage insurance - regardless of down payment, be it 50% or 3.5%

[ktlemonade]

yup, I just bought my first house in s. philly with fha, 3.5% down. There is the extra mortgage insurance, like others have said. For me, it was an extra $2200 premium at closing and about $200 added to my mortgage payment.

[Naveen]

I bought in EF with FHA, 3.5% and PMI, just as the others above. I have really good credit but...I'm also self-employed (which makes things more difficult). I still got the loan, though, so it's not impossible.

[lastmonthsrent]

I bought in EF with FHA, 3.5% and PMI, just as the others above. I have really good credit but...I'm also self-employed (which makes things more difficult). I still got the loan, though, so it's not impossible.

Naveen, who was your lender ? I would like to recommend them to prospective self employed clients.