Low Down Payment Loan Programs
In the Bay Area in particular, it can be tough to save enough cash to put down the standard 20% that lenders want. Usually a down payment of less than 20% means private mortgage insurance or PMI which is an extra payment of as much as .75% of your loan amount.
Luckily there are other options. One good one is the 80/10/10 (or 80/15/5) loan. In this loan – offered by only a small number of lenders, like Arcus Lending – you only need 10% down payment (or even 5%), and the other 10% (or 15%) is made up with a second loan. The second loan will have a higher interest rate, maybe 5-6%, but because it is only on 10% of the amount the payments are not that large.
This kind of loan may also allow you to keep the first loan – 80% of the purchase price – to less than the conforming limit of 636K, which attracts a lower interest rate. If you have a high income, you can then pay down the second loan faster without touching the first one.
Another option is known as LPMI or Lender Paid Mortgage Insurance. With LPMI the lender picks up the mortgage insurance payment and rolls it into the first loan payment, for an increase of only .25%.
Note that if you have retirement savings such as a 401K or IRA, it may be possible to borrow against them and repay them over time so you don’t get penalized for a regular withdrawal.