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Buying - FAQ

What is the minimum down payment needed to buy a home?

VA loans require are available with no downpayment. Typically the minimum down payment for a conventional home loan is 3% of the sales price and 3% for an FHA loan.


What’s a conventional loan?

A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) or the Department of Veterans Affairs (VA). It is normally fixed in its terms and rate.


What’s an FHA loan?

 An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. FHA loans require mortgage insurance.


What’s a VA loan?

A VA loan is a mortgage loan guaranteed by the United States Department of Veterans Affairs (VA). ... The basic intention of the VA home loan program is to provide home financing to eligible veterans and to help veterans purchase properties with no down payment.


What are FICO scores?

FICO scores are sort of a scorecard that tells how you have handled your financial obligations in the past and how well you manage the open balances on your existing credit accounts. There are three bureaus that rate your credit and issue a FICO score: Experian, TransUnion, and Equifax. Based on how long you have had your credit accounts, whether or not you’ve paid satisfactorily, and the existing balance on open accounts your 3 FICO scores range from 300 to 850.


How do I improve my FICO scores?

The best practice to have good credit is to always pay your bills on time, maintain the balance in your credit cards at or below 40% of the limit. If you have any collections on your record pay them off and get written proof that it’s paid. Make sure the collection is reported as paid to the bureaus as creditors do not automatically report it.

Be very cautious of “credit repair agencies” since normally they are just a scam.

If your credit history hasn’t been established for long it will take approximately two years to be considered seasoned.


What is Mortgage Insurance?

If you have 20% down payment available for your home purchase your lender considers it safe to make a loan and will not require mortgage insurance. If you don’t lenders will consider it a higher risk and you will incur in a mortgage insurance premium which is a type of insurance lenders require to protect themselves in case you stop making your mortgage payments. It protects the lender, not you. PMI (private mortgage insurance) is for conventional loans while MMI (monthly mortgage insurance is for FHA loans).


Housing ratios

Housing ratios are determined by basically dividing your gross income by the total of the future mortgage payments(front/top ratio) plus any additional debt and any other financial obligation you may have (back/bottom ratio).


What should my housing ratios be?

Ideally, they would like to see that only 28% of your gross income will go towards making your mortgage payments (called a top or front housing ratio). In most parts of California, this will be extremely difficult due to the high cost of housing.  This front ratio may be allowed to be as high as 43%. They will then add all other consumer debt you may have such as auto loans, credit cards, installment loans, and family support payments you may be obligated to pay to come up with your bottom ratio (back ratio). The maximum bottom ratio is 49% for conventional loans and up to 55% for FHA loans


How do I qualify for a loan if I’m self-employed?

Rather than looking at self-employed borrower’s gross income lenders look for the net income. Self employed borrowers tend to write off a lot expenses from their gross income leaving them sometimes with a low net income which does not allow them to show the ability to repay the loan they are seeking.

There are however some programs such as bank statements only instead of having to present their income tax returns which allow them to qualify for a loan.


Are there zero down payment loans available now?

Yes, as of January 2019 there is at least one program that offers 100% financing.


Can I use funds from my retirement account for a downpayment?

First time home buyers may use up to $10,000.00 for the purchase of a home without paying a penalty. While the law isn't 100% clear, many tax professionals believe that you and your spouse can qualify individually for the homebuyer exemption, potentially doubling the amount of money you can withdraw. (Consult your CPA or tax professional on this matter as this is not intended to be legal or tax advice)

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