Low Down Payment Options: Conventional, Combo, and Jumbo Loans

When the honeymoon of house hunting fades, you're left with the daunting task of financing. And for many, coming up with 20% for a down payment can feel impossible.

Luckily, there are several ways to get a mortgage with a low down payment - even when you're buying a luxury property. But how exactly do you do it?

That's what we're here to discuss.

We'll show you three ways to bridge the gap between conventional and jumbo loan offerings so you can secure a mortgage tailored perfectly to your individual needs.

Ways to Secure a Mortgage Loan With a Low Down Payment

It's not uncommon for potential borrowers to attempt to secure a low down payment for their mortgage loan. After all, 5% or even 10% down is a much more attractive option than the standard 20%.

And let's face it, we all have reasons for wanting to conserve our cash reserves rather than deplete them, whether we're changing jobs, growing our family, relocating, or something else.

But when you approach your lender, they'll typically offer three different types of mortgage products, all of which usually require full documentation (full doc).

That simply means you'll be required to provide evidence of your ability to repay the loan, such as:

• Proof of income (W2s, pay stubs, tax returns, etc.)
• Steady employment
• Healthy credit score and history
• Low debt-to-income ratio (DTI)
• Thorough asset documentation

What they don't tell you, though, is that there are ways to move from a conventional loan to a jumbo loan without having to break the bank by supplying a massive down payment.

So how do you maximize your borrowing power while still minimizing your out-of-pocket amount? Well, we have three potential options for you.

Option 1: Try for a 95% LTV Conventional Loan

While conventional loans aren't government-backed, they still follow underwriting rules set by Fannie Mae and Freddie Mac, and county-level borrowing limits published by the Federal Housing Finance Agency (FHFA) to determine whether a loan is conforming or non-conforming.

That means each county has its own conforming loan limit, and the FHFA updates these limits every year. Because the limit changes annually, check the current conforming loan limits on FHFA.gov for your county rather than relying on a prior year's figure.

That also means that as long as you're within your county's limit, you may be able to go up to 95% of the purchase price and still get a Fannie Mae or Freddie Mac loan, similar in structure to a government-backed loan.

The lower your down payment, the more cash you keep on hand at closing, though the exact dollar amount you'd need to bring depends on the current loan limit and the purchase price.

While 95% LTV financing is attractive to many borrowers, there are some important things you should know.

1. Most lenders will require you to carry private mortgage insurance (PMI) until your LTV drops below 80%.
2. Qualification requirements are usually higher for this type of loan.
3. The type of property may be limited.

Option 2: Get a Combination Loan

Now, for those who are just outside the conforming loan limit but don't want to fully commit to a jumbo loan, you could opt for a combination loan.

This is where you take the max loan limit for a conventional conforming loan and piggyback that with a home equity line of credit (HELOC).

So essentially, you may be able to get up to 95% financing on a higher-priced property by combining a conforming first mortgage with a HELOC, subject to the lender's maximum line amount and your qualifications.

By doing so, you will benefit from everything conventional loans have to offer, such as lower interest rates and an easier qualification process.

Just remember that HELOCs have special requirements that may add some additional costs to your loan.

Option 3: Secure a Low Down Payment Jumbo Loan

If your purchase price is out of range for conventional and combination loans, you'll need to get a jumbo loan.

While many jumbo loans require a 20% down payment, there are programs available that will let you go as low as 5% or 10% down.

For example, there are certain situations where you can obtain a 10% down jumbo loan up to a $3 million purchase or a 5% down on a $2 million property.

Just remember that these programs will come with stricter requirements. Ensure you take the time to find a lender that will work with you to get the best rates and terms on your jumbo loan.

Innovative Lending Solutions For Everyone

At Modern Day Lending, we understand that everyone's needs are unique, which is why we're dedicated to finding the right lending solution for your financial situation.

Unlike traditional lenders, we aren't limited to a specific range of loan programs and products. We're able to actively search through a vast network to find you the best rates and terms for your loan.

Our team of experienced mortgage professionals works closely with you throughout the entire loan process to ensure that you're never in the dark when it comes to exploring your lending options.

Reach out to one of your experts and see what low down payment options work best for you.