- For example, VA loan and USDA loan programs offer 100% financing
- VA and USDA Home Loans do not require any down payment form qualified borrowers
- For FHA loan programs, the minimum down payment required is 3.5% down payment with 580 credit score borrowers
- If credit scores are under 580, then FHA requires a 10% down payment
- Minimum down payment for conventional loan programs is 5% down payment for single-family homes and townhomes
- 3% down payment on conventional loans for first time home buyers
- However, down payment requirements can be higher on condominiums depending on the state
- Condominium loans are deemed riskier for mortgage lenders
- Any conventional loan that is higher than an 80% loan to value, private mortgage insurance will be required by the lender
- With conventional loans, the lower the down payment is the higher mortgage rate will be.
The more down payment down, the less of a risk factor borrowers are and that is why higher down payment yields lower mortgage rates.
2 To 4 Unit Mortgage Loans
- Any properties up to 4 units are considered a residential property
- If a home buyer is planning on purchasing a 2 to 4 unit property, FHA requires a minimum down payment of 3.5% down payment
- The home buyer needs to occupy one of the units
- The remaining units can be rented and be used towards income
- Up to 85% of the potential rental income of the other units can be used towards income
- For conventional loans, 15% down payment is required for 2 to 4 unit residential properties
Up to 75% of the potential rental income can be used towards income calculation of the borrower’s debt to income ratios.
Jumbo Mortgage Loans
Any mortgage loan limits of over $484,350 are considered non-conforming loans since they do not conform to Fannie Mae and Freddie Mac loan limit guidelines of $494,350. It is often referred to as jumbo loans:
- Minimum down payment for jumbo mortgage loans is 20% down
- There are jumbo mortgage lenders that will lend up to 90% loan to value, thus requiring only a 10% down payment
- 90% LTV Jumbo Mortgages require 720 credit scores
Again, lower down payment means higher mortgage rates because the mortgage lender has more risk.
Minimum Down Payment On Condotel Financing And Non-Warrantable Loans
Condotel mortgage loans and non-warrantable condominium loans are portfolio loans and require a 25% minimum down payment.
- Portfolio loans are 30-year mortgage loans
- Only adjustable-rate mortgage products are available
- There are 3/1 ARM, 5/1 ARM, and 7/1 ARM mortgage loan programs
For example, on a 7/1 ARM with a starter interest rate:
- the mortgage rate is fixed for the first 7 years
- will adjust from years 8 to 30 based on the index
- margin plus the index is the new rate
- The margin is constant
Minimum Down Payment On Investment Property Mortgage Loans
20% minimum down payment is required for investment homes:
- For 75% of the potential rental income to be used, the minimum down payment required on investment homes is 25% down
Minimum Down Payment Mortgage Case Scenario
For example, here is a case scenario:
- if an investment home has a potential rental income of $1,000
- the borrower needs to use the potential income to qualify for their debt to income calculations
- the home buyer needs to put 25% down payment instead of 20% down payment to be able to use potential rental income as qualified income
- By putting 25% down payment, 75% of the potential $1,000 or $750 can be used as part of the borrower’s income in qualifying for their debt to income ratio
If the home buyer of the investment home only puts down 20% down payment, the potential rental income cannot be used.