The Idiot’s Guide To Getting A 95% Mortgage Explained

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Getting a 95% mortgage may not be that easy task unless you meet certain conditions or you can get help from government institutions. Here are some of the venues that may help if you meet certain conditions:

Apply for a USDA Rural Loan if you live in a rural area. This loan is an FHA loan, but requires no down payment. It is not specifically for first time homebuyers, so anyone can use it. It has some income restrictions in that you can make too much money to qualify for it, but it is designed to help increase home sales in areas where population is low, so have your loan officer check HUD’s USDA map to be sure the property address fits this requirement.

Get a VA loan if you are eligible. There is no down payment required on VA loans, but you need to have really good credit. Loan limits have increased recently, so you may be able to buy your dream home through VA. Try to get an 80% conventional first mortgage and bypass the mortgage insurance requirement, and get the seller to hold a second mortgage for you. The interest rate of the second mortgage is something you have to negotiate with the seller. Look into FHA, another alternative for homebuyers.

Lower credit scores are accepted than conventional lending. There is a down payment of 3.5% of the sale price required, but this can be a gift from Mom and Dad or a relative, making it a no down payment “out of pocket” for you. If there is no one available to gift you the funds, check into your county’s Program, which may have grant money for you to use as down payment. Negotiate with your seller to pay closing costs, and you will be a happy homeowner with your nest egg still intact.

The term conventional loan includes loans under the current lending limits set by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Fannie Mae and Freddie Mac, respectively. It is one of two government loan programs available to borrowers. The other is a Veterans Administration (VA) loan, available only to veterans of the military service.

Debt Consolidation, including consolidating a home equity loan (second mortgage), if 2nd loan is less than 1 year old. According to the FHA, 1-2 unit primary residences may cash-out up to 95% of the estimated property value. For other property type the maximum cash-out is 85%. This is at least 5% more than on a conventional refinance loan. And, you do not have to have an existing FHA loan in order to get FHA refinancing. As a result, there is less financial risk to the lender, allowing them to offer lower rates to borrowers than rates offered by conventional refinancing.

And, FHA has the most forgiving credit criteria–FICO scores of 580 (east coast), 560 (Midwest) and 520 (west coast) being considered acceptable. Under normal circumstances, if a borrower puts 10% down on a $200,000 home they would be borrowing $180,000 and have a monthly payment of $966 (at a 5% interest rate), plus would be required to pay an additional $93 monthly mortgage insurance fee. With LPMI, the $93 monthly fee can be eliminated altogether. If the borrower has a credit score of over 680 points, they can pay a one time fee as a part of the closing costs.

Example, on a purchase of a primary residence, a borrower with a credit score of over 760 points, who borrows between 85% and 90%, will pay a 1.25% fee. If they are buying a second home there is an additional cost of.6%. The credit score is the primary factor that determines the LPMI fee charge and there is a matrix that I can go over with you. The fee, with scores between 680 and 699, can be pretty expensive. Any score over 760 will get the lowest fee available.


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