#OKBoomer, You Don’t Need 20% Down

Bound to happen from time to time in the digital age, a saying goes viral — in this case, “OK, boomer,” — which is meant to expose a close-minded or out-of-touch opinion, thought or mindset of one generation by another (I’ll let you figure out the age demographics here). Hopefully, the topic of this blog will transcend generational differences and address the assumptions about the down payment one needs to make when purchasing a home, versus the reality of what we see every day with those who are actually buying homes. I think you’ll be surprised at the expanse between fact and fiction.

Let’s start by saying that in the US, it’s been widely assumed that a homebuyer must make a 20% down payment of the purchase price. This concept has been propagated from one generation to the next and since Americans have been buying homes instead of carving them out of frontier land. In fact, not a week goes by where we don’t get a call from a prospective buyer that starts with an iteration of, “We’d like to buy our first home but we haven’t saved 20% yet…” Yet, over at least the last 20 years, the average down payment across the US has hovered closer to 6 or 7% of the purchase price. A far cry from the gold-standard 20% many buyers struggle to save. Let’s look at the number of ways that contribute to a buyer’s access to lower down payments:

0% Down Payment

Veterans and those in rural areas may have access to 100% financing. The VA loan program is a huge benefit and great way for our industry to show appreciation for those who have served our nation. The USDA loan program has geographic restrictions, but for some may also allow access to the financing without a down payment.  VA loans also have access to 0% or reduced down payments at loan levels that exceed the nationwide, $484,350 1-unit max.

3% Down Payment

Conforming loans still permit a 3% down payment up to a loan amount of $484,350 (thus permitting a purchase price of approximately $510K at max leverage). Yes, these loans have PMI, but they can be a great entry program for the first-time buyer, and they are not restricted to veterans, rural areas, income limitations or property types. Conforming loans are accessible by all who qualify and programs like the Home Ready mortgage have PMI that is less expensive as well.

3.5% Down Payment

FHA loans come in at 3.5% down, and in many areas, FHA loans are the bread and butter of the market. Borrowers with lower FICO scores, higher debt-to-income ratios and other challenges that could trip up a conforming loan, may find the FHA program to be the best fit. And, FHA will permit 3.5% down even in high-cost areas where the conforming loan limit exceeds $484,350. Remember that on conforming loans, even in high cost areas, once above a loan amount of $484,350, the down payment requirement steps up to 5%.

5% Down Payment

Conventional, high-balance (or super-conforming) and even jumbo will come into play with a 5% down payment. Again, the higher loan amounts and purchase prices may not touch every state, but across the country stats have proven that this level of initial investment is closer to the norm when it comes to buying into the real estate market.

10% Down Payment

Even in super jumbo land (loan amounts that exceed the high-balance conforming limits) and up to price points that much of the country would consider absurd ($3MM+), believe it or not, a 10% down payment mortgage is an option. And we do them with frequency here in CA. For a while, the toughest aspect of getting a 10% down loan had nothing to do with the borrower, but instead we observed that sellers in competitive markets overlooked these offers in favor of buyers who structured their financing with a larger down payment. Now that we’ve seen some softening in the higher price points, motivated sellers are again considering qualified buyers with 10% down payments.

If you examine the statistics for down payment patterns, you’ll see that some states, like California, tend to trend toward the higher end of percentage down payments (approaching 20%). This is due to higher purchase prices in many cases and the fact that those prices push out some of the programs that permit lower down payments. But in other states (GA, for example), home prices in concert with percentage of veterans, rural areas, and so on, can push the down payment average percent below 3%. As always, all real estate is local and you should consult with local professionals on your options. But make no mistake, boomer or otherwise, you don’t need 20% to get into most markets. And if you have questions, send me a letter or give me a call or page me or e-mail or text or Skype or message me when you’re ready to set aside your preconceived ideas and focus on the way it really is today.

Stop, hey, what’s that sound? 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

VA Jumbo Mortgages in California

I marked this year’s Memorial Day with a weekend full of kids’ activities — my son’s t-ball season wrapped up and then there were about a half-dozen birthday parties that followed. Fairly typical, I am told, for parents these days. But quick on the heels of the three-day weekend, I realized the anniversary of D-Day was coming up and that just a couple of years ago I had the good fortune to visit the beaches of Normandy, France. The two occasions together got me thinking about our nation’s veterans and how our industry helps them use one of the benefits they justly acquired through their service.

At least here in Marin County, CA, just north of the Golden Gate, we don’t see a lot of VA loan scenarios and it’s a shame. Because I’m licensed to originate mortgage loans throughout the state of California, I am aware that there are geographical pockets where Veterans Administration (VA) loans are common and I believe that education by real estate agents in all other areas about the VA jumbo loan product could go a long way towards helping those buyers who have served our country find the best home loan for their ideal property in any locale. So perhaps a “True or False” boot camp of sorts is in order and below are several common points of confusion, concern and curiosity about VA jumbo loans.

  1. VA loans are all zero down.  This is FALSE. While in some cases a veteran can obtain 100% financing, they are not required to do so. And in cases where the loan amount would exceed the county loan limit, there is a formula we use to determine the minimum required down payment.  Yesterday, in fact, I priced a jumbo loan scenario for the purchase of a home worth $2.1MM. The vet would have needed to make a down payment of about $350K, but still less than 20%.
  2. VA loan limits are the same as FHA.  This is TRUE, but a bit of a trick question. The loan limits for one- to four-unit homes in any metropolitan statistical area (MSA) do mirror the conventional and FHA limits, however, a veteran can exceed these amounts if making a down payment (where he or she might otherwise have looked to obtain 100% financing). You can look up the loan limit in your area HERE.
  3. VA loans require a pest inspection.  TRUE story, here in California.  And this is the one that causes the most reluctance among listing agents in my neck of the woods. But think about this for a minute. Many buyers in our market are forced to waive the inspection contingency already. And many sellers preemptively order inspections. If the termite report is clean, what are you worried about?
  4. VA loans have PMI (mortgage insurance).  Somewhat TRUE but mostly FALSE.  VA loans may have an upfront funding fee (FF), but this is sometimes waived if the veteran has a service-related disability. But more importantly, no VA loans have monthly mortgage insurance. This is a big departure from an FHA loan, for example, and much to the benefit of the veteran.
  5. VA loans have great rates.  VERY TRUE.  When we’re talking 30-year fixed jumbo rates, it’s tough to beat a VA loan.

So if you’re a veteran, thank you! And know that a VA jumbo mortgage is an option you should explore. This time around, we’re here to serve you.

And real estate professionals, if you entertain a VA offer — especially a jumbo VA mortgage — call me if you have any concerns about its strength and viability and even if I am not party to the transaction. We’d love to see a vet get the home and we’d hate to think they don’t get fair consideration out of a misunderstanding of this wonderfully advantageous program.

Semper finance, 

Robert J. Spinosa

Vice President of Mortgage Lending

Guaranteed Rate

NMLS: 22343

Cell/Text: 415-367-5959 Fax: 415-366-1590

rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960

Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283