Your Mortgage Down Payment Questions Answered

Posted: October 23, 2009    Categories: mortgage advice

There seems to be a lot of conflicting information regarding home loans and mortgages. In particular, you have probably heard that lenders are requiring more money down than ever, and that you shouldn’t even consider purchasing a home unless you have 20 percent to put down on the home.

What’s fact and what’s fiction?

Although the myth that you must have more than 20 percent down is not exactly true, it does shed light on the changes that the mortgage industry has made since the decline of the credit sector and subsequently of the housing market.

The fact of the matter is that lenders are pickier than ever regarding to whom they will extend a mortgage. With a record number of homes going into foreclosure, and literally millions of Americans behind on their mortgage payments, lenders must do what they can to ensure that an individual will be able to repay a mortgage loan; and a down payment is often a good indicator of that.

The amount that you will need to come to the table with in order to secure a mortgage will depend on the lender. Most homebuyers today are required to put at least five percent down, while others may need to put as much as 20 percent down to secure a home loan.

Very expensive homes or homes bought in areas that are burdened by an overabundance of foreclosures may even require more than 20 percent down.

Q: Can I still get a home loan with no money down?

A: Given today’s economy and lending market, do not expect to snag a home loan with no money down. The only exception currently offered is the cash back mortgage (also goes by other names depending on the lender), but in this case the lender still requires the minimum 5% down payment, the difference is that they provide the down payment. Even better is they do not require it to be paid back, they simply provide the down payment. But don’t get too excited just yet, they do have very strict guidelines on these offers , so if you have a beacon score less than 680 you probably won’t get approved. Also don’t expect the best rates out there either, you will be looking at bank posted rates, which are typically 1-2% higher than the best rates offered by lenders.

Q: What is the minimum I can pay for a down payment?

A: With regards to conventional loans, for single-family homes, you may be able to secure a mortgage for as little as five percent down. The neighborhood must be flourishing and the property must meet the exacting standards of the lender, but it can be done. However, it is important to point out that you must have a great credit score, adequate income and assets and an acceptable debt-to-income ratio, as well.

Q: Will I need more money down if I buy in an area that is currently dealing with a high foreclosure rate?

A: Probably. Many lenders keep a close eye on areas that they feel are declining, and will often ask for an additional five percent down if you want to purchase a home in one of these areas. In other words, if you are using a lender that typically requires five percent down, they may require 10 percent down if you want to purchase a home in area with a high foreclosure rate.

Q: What about condos?

A: Lenders typically require a larger down payment for a condo, but this is not necessary. As long as you have good credit you can land yourself a condo in downtown Calgary for 5% down, or if you have excellent credit you may be able to qualify for a cash back mortgage as described above. Just keep in mind that to get the best rates in Calgary Mortgages, and the Calgary Condo market you will be  expected to have excellent credit.

Your best course of action is to simply talk to a lender and get a loan pre-approval before you begin looking at homes so that you can become educated regarding the lender’s down payment requirements.

About the Purcell Mortgage Team:
The Purcell Mortgage Team are an industry-leading pair of mortgage professionals who have been serving Calgary for several years. JoAnne Purcell was ranked within the Top 50 Canadian Mortgage Professionals in the CMP Magazine. If you are in need a reputable Calgary mortgage broker, please contact us today!