The Veridian Blog

Given the widespread disappearance of 2nd mortgage options at the wholesale level, what solutions are left for homebuyers without the standard 20% down payment?

1.      Traditional 2^nd loan piggyback – This used to be the most sought after strategy but has seen limited success in the last 3 years because of the widespread disappearance of high CLTV 2^nd mortgage programs – for both variable lines-of-credit as well as fixed 2^nd mortgages.   However, these guidelines are starting to be relaxed.

2.      Gifts – Should you have less than 10% derived from your own funds, a clean-cut strategy is to procure gifted funds from Uncle Joe or Mom and Pop.  Typically, though, at least 5% of the down payment must still be sourced to the borrower’s own funds.  Gift letters and gift transactions are also examined more carefully than ever before so be sure to thoroughly paper trail everything.

3.      Private Mortgage Insurance – Not the preferred solution, but if that house is a one-of-a-kind, "must-have", then Private Mortgage Insurance (PMI) is always an option, albeit expensive.  The advantage is that only one loan is necessary and you won’t have to deal with the hassles of a 2^nd mortgage application and the much tighter LTV guidelines.  LTV maximums for even high-balance conforming loans, have recently gone up to 95% with some wholesalers.  The big downside?  PMI will run as much as a 1.5% premium per year, every year!

4.      Wait and Rent – No one likes to hear this, but if home prices aren’t skyrocketing any time soon, it might be in your best interest to sit out, continue accumulating down payment funds and hope that home prices continue to stay the same or soften.  You can also use this time to work on improving credit, if necessary. 

5.       Buy a cheaper home – An easy solution to the equation is to reduce the sales price, and hence the required loan amount and down payment.  You will still get into a home and if their objectives are long-term, then you can plan ahead for a bigger purchase in the future. 

Please call us with any questions or for a free mortgage consultation, seven days a week!