The equity you need for a mortgage is less thank you probably think

Most people will tell you that you must have excellent credit and a
big down payment to secure a larger mortgage. The reality is that while
having a big chunk of cash to put down on a house is nice to have, it is
not always an absolute requirement. Here is the information you should
know if you are looking to take on a large mortgage.

This post is especially relevant for individuals looking to buy in
high cost areas, including those in Sonoma, Marin, San Francisco, and
Alameda; notoriously high priced counties located in California. In
these counties, the maximum loan limit
ranges anywhere from $595,000 – $729,500 and fall within acceptable
lending loan limits that do not require a large down payment. Any loan
up to the maximum county loan limit can qualify for only 3.5% equity in
down payment on an FHA loan.

Jumbo
loans exceed the maximum county loan limits and are not bought and sold
every day to Fannie Mae and Freddie Mac. Jumbo loans do require
significantly higher credit scores, typically 700 or above, and require
at least 10% equity in down payment. Keep in mind that any loan with
less than 20% equity in the property will become subject to including a
monthly mortgage insurance amount.

Another program in the marketplace known for having low down payment
requirements are VA loans. VA loans are available to veterans, active
duty service members, National Guard members and reservists who meet the
requirements of the Department of Veterans Affairs and have acquired a
Certificate of Eligibility from the VA or their lending office. VA loans
will also go up to the maximum county loan limit in and can even go up
to or over one million dollar home values. The VA loan guidelines make
down payment pricing very interesting; the person receiving a VA loan
can put down a mere $50 for every one thousand dollars financed. For a
loan in the $1 million dollar range, you could be paying as little as
$50,000 for your down payment.

The idea that you need a big down payment in order to secure a larger
mortgage size is simply not true. FHA loans do require mortgage
insurance premiums and VA loans have a guarantee fee which will increase
your closing costs but your down payment will remain minimal. VA
mortgages by and large are one of the best low-cost high-buy in terms of
power available in the marketplace.

Acceptable sources of down payment funds can include:

– Gift funds from a relative

– Selling of personal property that can be documented and supported by
third-party value pricing (i.e. Kelly Blue Book for a car sale)

– Withdrawing from retirement funds – many retirement accounts have
provisions that allow for borrowing funds for a down payment to purchase
a primary home

You cannot use your income
as a form of assets. Banks want to see that you have the ability to
save money up on your own volition. You cannot use money from your
paycheck that you deposited 5 minutes ago as a down payment because the
funds are not considered “seasoned”. In order for these funds to be
considered, these funds must have been in your accounts for the last 60
days or more to show that the money is being “saved”.

If you are looking to buy a house, do some research. Figure out how
much cash you really have by working with a lender and discovering what
you qualify for now. Work with that lender and develop a savings plan to
help you accomplish your goal of qualifying for your first mortgage or
improving your current mortgage and all in all bettering your financial
situation.