I have a client who says they can get a conventional mortgage with 5% down. The lenders i've been working with have insured conventionals with 10% down. That's the lowest down payment i've seen other than FHA or VA. Any thoughts?

Maybe a Mortgage Broker can chime in on this; but I'll go way out on a limb and say that "Conventional" always involves a 80/20 Loan to Equity relationship. Conventional requires a 20% Downpayment.

Any Loan requiring less than a 20% D.P. has some kind of PMI built in to cover the Lender's exposure for the missing 20% D.P. That may take the form of FHA or VA, MGIC, GE Credit, or a whole host of State specific programs. Some Insurer has to become involved in protecting the Lender from any loss exceeding 80%, and the Buyer will pay a Premium for this Insurance. With VA and FHA, it is the U.S. Tax Payer who pays the bulk, or all, of the PMI Premium.

In your case, the Buyer is going to be paying a PMI Premium to someone. The Premium may be a one time cost at Closing, or it may be monthly for the length of time his equity is less than 20% (say the 1st 10 years of a 30 Mortgage) That may not have been disclosed to him yet; but I think it's there, in the cards, lurking. They should plan for this additional cost.

I doubt that these folks have actually been to a Lending Institution yet, and haven't been Pre-Qualified OR Pre-Approved. And I'd worry about making them a "Client", if they are fabricating their story at this stage. Good Luck.

You need to find new lenders.LOL

Actually with the conventional loans down payment is tied into credit scores and documentation now.

For instance yes if someone has a score in the 600's and barely qualifies the lender will want a high down payment in these times.

With great credit scores in the 700's to 800's and no blips in documentation conventional will do 5 down all day of the week. The interest rate will be a hair higher to compensate for the risk.

In my are most were going FHA because of only 3.5 percent down (used to be 3 but they changed it).

Just recently conventional lenders in my area have a 97 percent loan with 3 down but the buyer has to have high 700's to 800's credit with concrete documentation and meet lengthy requirements.

I hope this clears it up for you. So in short marginal buyers by today's standards is a lot down.Excellent buyers can still get great terms and small down payment but only make up a small slice of the market.

Thanks for the info.

Even with excellent credit and low DTI, I haven't seen any lenders allowing for less than 10-15% down on a conventional loan within the last year or so. Of course there will probably be some sort of PMI with less than 20% down or no second mortgage.

I know lenders base lending requirements and what loans they do by the dynamics of the local market.

For instance some lenders will not loan in certain areas.

Here in GA you can do FHA at 3.5 down and Conventional at 3 to 5 percent down all day long with great credit and solid financials.

Georgia doesn't have the wild swings in values Vegas,Cali,and other areas do so in those areas the lenders are most likely requiring big down payments for the risk and volatility of the market.

I'm hear 10% for conventional so maybe call your clients LO and see what he says. Then maybe talk to your LO and for his opinion. You would hate to go into Escrow and not close.

It sounds like an FHA deal. No MI company will ensure a 95% deal on conventional.

Boris Dorfman
www.lendingbeeinc.com