This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

You don't need 20 percent down





Alex Castellanos, president of the Mortgage Bankers Association of Florida, says many of his clients think that they need a 20 percent down payment to qualify for a conventional mortgage loan today. Not so.

Borrowers with good credit, low debt and strong monthly incomes can qualify today for conventional mortgage loans with down payments of as little as 3 percent, Castellanos says.

"People need to know this," he says. "They need to know that down payments are no longer the hurdle they were immediately after the housing crash."

Low mortgage rates help you qualify for a larger loan amount, but coming up with 20 percent of that loan amount is a struggle for many. A 20 percent down payment on a 200,000 loan is $40,000. A 5 percent down payment is just $10,000, and 3 percent down equals $6,000.

You don't need 20 percent

Richard Simon, owner of AZ Lending Experts in Mesa, Ariz., says that both credit score and debt guidelines have loosened for borrowers seeking low down payments.

Traditionally, Fannie Mae and Freddie Mac have both stated in their guidelines that your total monthly debts should equal no more than 36 percent of your gross monthly income.

But Simon says that it's possible for borrowers to get approval today for conventional loans with down payments of 5 percent, even if their total monthly debts equal as much as 50 percent of their gross monthly income.

Borrowers will need to show enough reserve income in their bank accounts to pay three months worth of mortgage payments to qualify at that ratio of 50 percent, Simon says. Those without such reserves can qualify with monthly debts as high as 45 percent, Simon says.

Down payment requirements

What do you need to qualify for a loan with a low-down-payment? There are some general guidelines, though these can vary by lender:

10 percent down payment

For a loan with 10 percent down, Simon says you need a FICO credit score of at least 680 for a conventional mortgage. That's an improvement from two years ago, when you would have needed a FICO score of at least 740, he says. You'll need a back-end debt-to-income (DTI) ratio (that compares your total monthly debts to your gross monthly income) of 45 percent, he says.

5 percent down payment

Simon says you'll need a FICO score of 740 or higher and a back-end DTI ratio that doesn't exceed 45 percent.

3.5 percent down payment

Your best bet for a mortgage loan with 3.5 percent down is one insured by the Federal Housing Administration (FHA). Jerry Calnin, branch manager of Inlanta Mortgage in De Pere, Wis., says that many lenders won't approve FHA loans for borrowers with credit scores under 620, despite the official FHA guideline of 580. If your FICO score is at least 640 you'll have much better luck getting approved, he says.

3 percent down payment

You'll need a FICO score of 740 or higher, and a back-end DTI ratio closer to the traditional 36 percent, Simon says.

0 percent down payment

For conventional mortgage loans, 100 percent financing is still a rarity, but credit unions and lenders might offer them as part of their portfolio collections -- loans that lenders keep in-house rather than sell on the secondary market. You'll need an excellent credit score and low DTI ratio to find a lender willing to offer 100 percent financing.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,493.37 -69.93 -0.42%
S&P 500 1,925.15 -5.52 -0.29%
NASDAQ 4,352.6390 -17.1340 -0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs