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My wife and I are considering buying our first house. We are pre-approved for a mortgage and, after months of seeing nothing but fixer-uppers or homes in questionable areas, we found a home we really like. The house is technically within our pre-approval range, but it's nonetheless a bit pricier than we planned on. The monthly payments are okay, but making the 10% down payment and paying closing costs will leave us with virtually no savings.

I've always heard that 10% is the minimum down payment, and most lenders seem to start from that assumption, unless you're willing to pay the high monthly premiums of an FHA loan. However, I keep reading articles that mention a 95% loan-to-value ratio (i.e. a 5% down payment) as a potential mortgage scenario. This is surprising to me, as I thought the minimum was 10%.

Is it possible, then, to get a conventional mortgage with something like 8% down? The extra two percent of the purchase price would go a really long way to helping us feel more comfortable about having money set aside in case of emergencies or unexpected home costs. I'm sure there's a cost of some kind - maybe a higher rate?

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    Have you talked to a mortgage broker? – Pete B. Mar 27 '14 at 15:10
  • Even if it's possible, it's worth thinking about whether it's a good idea. Zeroing out my savings to take on debt, even for a house, would make me nervous. – BrenBarn Mar 27 '14 at 17:56
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    @BrenBarn OP is talking about putting less down specifically so they don't zero out their savings. Though I agree with your first sentiment: even if it's possible, it may not be a good idea. – Craig W Mar 27 '14 at 18:41
  • @PeteBelford Just had a talk with him. This is fine to do - the minimum is only 5% - but doing so has two costs: a) higher PMI b) a lower percentage of the purchase price can be used for seller-covers closing costs. – bill Mar 28 '14 at 0:21
  • You probably don't want to hear this, but I think the best advice is to keep saving until you CAN afford at least 10% (and preferably 20%) down. You may not be financially ready to buy a home yet. – JohnFx Mar 28 '14 at 18:26
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Anything is possible. I bought a house in as the market was dropping and all the lenders were scared. I think i put down less than 10% and I think even more like about 5%.

The tricky thing was finding a lender. Ultimately I used a local credit union.

A few things to note though:

  1. You will likely need some PMI for the balance above your 80%
  2. You won't get the best rate: the bank is taking more risk
  3. You might need two loans. A normal loan (i.e. first 80%), and "second lien loan" that covers the rest.
  4. You will need stellar credit. i.e. they aren't going to do this for someone with 700. For buyers with scores in the 800+ range you can get pretty much anything you want.
  • Nice answer but just curious, wouldn't lenders require more down when they're scared? – Craig W Mar 27 '14 at 20:09
  • @CraigW More down reduces the risk; higher rates price in the risk. – NL - Apologize to Monica Mar 27 '14 at 20:35
  • @NathanL I understand that. I'm referring to the first paragraph. If lenders are scared, they would require more down, not less. Unless mlathe is saying they only had to put down 5-10% despite lenders being scared. – Craig W Mar 27 '14 at 20:51
  • @CraigW, you are right. This was right as the housing market was in the throws of freefall and lenders were really skittish. Basically the only thing that allowed me to get this kind of credit was that my wife and I had good cashflow, we had really good credit and we searched long enough to find a lender with a program that matched our needs. – mlathe Mar 27 '14 at 21:01
  • @mlathe I agree with your first two points, but disagree with the second two. This can all be done--and usually is done--as one loan, with "good" (700s), but not "perfect/stellar/800+" credit. 5% is the standard minimum, and unless you're going up to 20% down, OP will just have to pay PMI and a little more in interest. The whole purpose of paying PMI is that it insures the lender against some of the risk of the lower-down-payment//Loan-to-Value. – THEAO Mar 28 '14 at 3:13
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Yes. I've spoken to mortgage officers from various banks who will do conventional loans with anything as low as 3.5% down, however there are many more restrictions (e.g., normally you can borrow funds from a parent or relative for a down payment, in this case that was prohibited).

If you are already pre-approved, then your approval letter should state the specifics you need to adhere to. If you would like to modify that (e.g. put a smaller amount down), then you could still get the loan, but your pre-approval won't be valid.

I would recommend speaking with your lender (and perhaps with a few others as well) about the new home you are looking at.

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