Is it still possible to buy a house with a small down payment (5-10%)?

Asked by Rgr, San Francisco, CA Tue Sep 2, 2008

I own my own home in San Francisco. I could rent it out for enough to cover the mortgage, taxes and insurance. I would love to buy a condo in San Francisco or in the East Bay. But, I don't have enough saved for a 20% down payment. I have a good job and excellent credit. Any advice?

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Chris Word, , San Francisco, CA
Tue Sep 2, 2008
I think you may have more than the option you've outlined:

If you've owned the home you're in now for a while, you might have equity for a loan that will put you into a 20%down position. So, that means if the value of the home you are in is higher by a significant amount than the loan you're paying down on, then you should be able to take the value of the home in a home loan, use it for the downpayment on the new property and go from there.

Another option is to sell the home you're in now. Again, this is favorable if you have good equity in your home. It would take time to sell your home, depending on the neighborhood and condition of the property. I would say though, that once you sell it and get the proceeds from the sale, your position might be pretty good at that time. It all depends and you'd need to talk to a financial advisor to see what all the benefits are. I know that if you sell the home you're in now, you won't have to worry about managing the tenant that moves in.

And of course, you can keep the property you own now, rent it out and use it to help pay a mortgage. This allows you to hold on to a valuable home, while living in a condo of your choice.

Can you get a 5% or 10% loan? The short answer is yes you can. The long answer is that not a lot of people are being awarded such loans right now. You can go the FHA route, but that will also take time, and you will have to be precise with whatever they ask of you - not to mention that the property you buy has to be approved by FHA. You'll have to Mortgage Insurance and there are many ways to do that as well (like paying it all up front, or paying it monthly with the mortgage, or deferring it until you sell one of your properties - all have pluses and minuses regarding taxes and how you can take them as deductions). Talk to a mortgage professional as soon as you can.

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Danielle Laz…, Agent, San Francisco, CA
Tue Sep 2, 2008
Yes, it is absolutely possible! There are now FHA loans that will work (3%-5% down miminum...) and other loans that work with 10% down. You might have PMI but there are now tax benefits to help offset the costs and you don't have to pay it forever. Having recently helped home buyers purchase a San Francisco single family home through the FHA program and with 5% down, I know it is possible.

Currently, I have a buyer looking at condos in San Francisco with 10% down payment. She will have to pay PMI but only for the first year. The loan is great too with competitive rates and 30 year fixed interest rate terms. It gets here into the market when condo prices are a little softer and her up-front costs are not fixed.

I just wrote about this topic. See link below. Even though the article is geared towards San Francisco first time buyers, most of the programs are for anyone.

Contact a reliable local mortgage broker who CAN do FHA loans... Not all companies are able to offer all of the FHA programs.

I caution you to work with a lender and Realtor who understand how these new loans work. There are different timelines and such. If folks are not familiar, there can be more unforeseen headaches than is necessary.
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Bill Eckler, Agent, Venice, FL
Sat Sep 6, 2008

Yes, Take a look at the FHA program. You should be safe with 5-10% down.

Good luck
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Kurt Schwabe, , San Francisco, CA
Sat Sep 6, 2008
Yes, it is possible but the pool of lenders who are doing those loans has shrunk substantially in the past 12-18 months. As a result those loan can be expensive. This is a better discussion to first have with an accountant and financial advisor so you can review the tax and financial implications. San Francisco has fared much better than the east bay in this slumping market. From an investment standpoint you might make out better in the long run taking your profit and buying in the east bay. You might even be able to buy two properties in the east bay with the proceeds from your sale in San Francisco. However, before you do anything, talk to your accountant and a financial advisor. Good luck!
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Sally Rosenm…, Agent, San Francisco, CA
Tue Sep 2, 2008
Dear Rgr,

It is difficult but not impossible. Try Cecilia Diaz @ Patelco Credit Union. Her email is Also try Mary Apprill @ Wells Fargo Bank. Her email is Patelco is trying to get into the SF real estate market. I have a client using them now and we both like Cecilia.

Good luck! If you need an agent, naturally, I would be pleased to assist you in your search for a condominium.

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Jason Chapin, , San Francisco, CA
Tue Sep 2, 2008
Hi Rgr,

It is possible to buy with 5-10% down. The more the better... Underwriting guidelines have tightened, as you are well aware, but it sounds like you may be in a decent position.

I don't think anyone posting answers here will be able to address your question nearly as well as a trustworthy mortgage broker. Do you live in SF? I know a great team here in San Francisco that can explore numbers with you. Drop me a line and I'll be happy to forward their information.

There are some good deals right now in the city, but there are better deals in Oakland. It looks like prices will improve over the coming months, too. It would be smart to meet with a finance professional to explore your options, then spend some time getting to know the SF and East Bay markets.

Check out my company, Urban Bay Properties. We specialize in condo/loft properties in SF and Oakland.

Take care and good luck!

Jason Chapin
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, ,
Tue Sep 2, 2008
The East Bay has been designated by Fannie and Freddie as "declining" markets, so 95% is now difficult right now because of mortgage insurance. 90% is possible.

there is a new Fannie/Freddie rule about converting your home into a rental property: they will count 75% of the rental value if AND ONLY IF you have at least 30% equity in your current home.

A lender might also question whether you plan to owner-occupy your new property if it's smaller than what you now own.

I have given you the roadblocks that could stand in your way, not saying your plan is impossible, just could be difficult in this lending environment.
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Jed Lane, Agent, Petaluma, CA
Tue Sep 2, 2008
The credit market is tight right now but from your description it sounds like it should be possible. Contact the bank where you do business and see. Also contact a good motgage broker. The bank because it is getting back to the old days where a relationship is valued and the mortgage broker to get access to all the other sources of money from different lenders.
I can strongly recommend Asiling Ferguson of Gurantee Mortgage on Van Ness Ave. 415-345-4318.
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Sj209, Both Buyer And Seller, California
Tue Sep 2, 2008
You should be fine with a 5-10% dp. FHA might be the way for you. Not a bad time to buy in the East Bay.
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