Want to pay less down for a home? Check out the new guidelines.

Newer, low down payment options help more borrowers qualify for home loans. 

Mortgage interest deductions remain an important tax-sheltering strategy.

As a financial planner, I work collaboratively with many professionals in my community. One very valuable professional to know is a mortgage banker.  Consumer purchases or refinancing of a home usually represent the largest expenditures people may make in a lifetime. Recently, banks began to relax the amount required of consumers for down payments.

That said, responsible borrowers should make sure that the amount to be paid monthly stays within recommended guidelines.  For instance, the amount represented for a monthly mortgage, insurance and property tax payment should be represent no more than 38% of gross monthly income.  If the payment exceeds this ratio, the borrower may be at risk for a cash crunch should unexpected events occur.

Consumer research done by Fannie Mae*, shows that many people have problems mustering the initial money needed for the down payment and closing costs.     This is because 44% of first time buyers think they need 20% for the down payment, according to Fannie Mae.

The larger down payment lowers the monthly mortgage payment, and of course, represents less risk for the lender and borrower. Even so, responsible borrowers may now be able to make less of a down payment.

Mortgage banker Rosette Pollock of Greenbrae, California, said buyers wanting to invest less than 20 percent down can explore several new options.  For instance, she said, Fannie Mae has announced a 3% down payment choice for an owner-occupied home.  Under this program, the maximum loan amount is $417,000.  The 3% down payment can come from the borrower’s own saved funds or a gift from an eligible source.

In exchange for putting less than 20% down, the borrower would incur a monthly mortgage insurance payment which protects the lender in case of default.   Depending on the borrower’s adjusted gross monthly income, the mortgage insurance cost may be tax deductible. Borrowers should consult their tax accountant for additional information.   Find more information on the IRS website @http://www.irs.gov/publications/p936/ar02.html#en_US_2014_publink1000229890.

Yet another program, available from the Federal Housing Administration (FHA), requires only a 3.5% down payment for property purchased in selected areas including Marin. The loan may be made up to a maximum amount of $625,500 depending on the county.  FHA would also ask for a one-time upfront mortgage insurance premium, and a monthly mortgage insurance payment.   FHA recently announced it is lowering the monthly mortgage insurance amount.  “On a $500,000 loan, this new announcement will save a home buyer $2,500 a year,” Pollock said.

A private program, also available in Marin County, asks for only 5% down on a purchase up to $658,421 with no monthly mortgage insurance, Pollock added.  “The borrower cannot own any other residential property and the property would need to be located in an eligible census tract,” she said. “Otherwise there is a restriction on income, with the maximum modified gross income income allowed being $135,493.”

If the property is located in an eligible census tract, the borrower’s income can exceed $135,493.  Additionally, reduced interest rates are available.  Pollock said there are currently 13 eligible census tracts in Marin (San Rafael has 4 tracts, Novato has 4 tracts, Ross Valley has 2 tracts, and Southeast Marin, Bolinas, and Northwest Marin all have 1 eligible tract).  If you live or want to buy outside of these areas, check with your local mortgage banker for other eligible census tracts. Census tracts cross zip codes, so to determine whether a property is eligible, enter the address on this link: https://geomap.ffiec.gov/FFIECGeocMap/GeocodeMap1.aspx .

If the borrower buys a home or even refinances in one of the tracts, he or she receives a discount off the rate for the private program mentioned by Pollock.  Unlike for other programs, there is no monthly mortgage insurance on the home which helps lower the monthly payment.   Borrowers do need to qualify based on income, assets, and credit in all cases (no short sales for the past 4 years).  The  maximum debt to income ratio is 38% for a borrower’s income divided by the new mortgage payment (principal, interest, taxes, insurance, and HOA** if applicable).   The ratio for borrowers’ income divided by the new mortgage payment + all other liabilities must not exceed 44%.

Still other lending options exist for a home buyer who can make a 10% down payment.  Lenders may offer financing up to $1,500,000 and with 15% down payment.  This would permit a qualified borrower can purchase a $2,000,000 home.


Whether owning this much equity in a home makes sense for you, personally, is a discussion to have with your financial planner and tax advisor. If you live in an area outside California, check with your mortgage banker to see what programs may be available for you.

Having a mortgage can lower your income tax bill, and create a more stable, positive experience in living in a community. However, if your short term plans – in the next 5-7 years – involve a relocation or retirement, purchase of a home may not be right for you. Check your assumptions of equity growth, taxation benefits and cash flow with a trusted professional.


California residents can ask Rosette to provide them additional information by emailing her at

rpollock@terramb.com.  For financial planning advice feel free to contact me for an appointment at knemetz@mcclurgcapital.com.

*=Federal National Mortgage Association
**= Homeowners Association Dues

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