Ask Terry Questions A mortgage with 5% down?

A mortgage with 5% down?

By Terry Savage on September 29, 2013 | Housing / Real Estate

Hi Terry,

I am thinking about relocating to the Southwest Michigan area but I have some issues:
1) I filed chapter 7 bankruptcy, it was discharged September 26, 2013
2) I owned a home but found a renter who is willing to sign an one year lease
3) Cannot find a lender who is willing to offer me a convential mortgage, I have the 5% down payment, my credit is above average.
I found a beautiful home for 125,000, what do you recommend. Are there any lenders that will work with me?


SAVAGE SAYS:That is a tough one.  I don’t there is any bank that will make a mortgage these days with only 5 percent down — unless you are a veteran (in which case the VHA has programs for you).  There are some Fannie Mae and Freddie Mac programs for buyers with 3 percent down, but they require a credit score of 660.  And they require PMI insurance, which raises the monthly payment.  Even those are about to go away, as new mortgage regulations go into effect requiring that a borrower have total monthly debt of no more than 43 percent of income.

Financial institutions are under new regulatory pressure, and most are requiring at least 20 percent down.   I’m afraid you’re going to have to rent if you want to make this move.   Is that a possibility with the owner of the home in Michigan?

I think you’re saying that you will still  own your home in Chicago, and rent it out, so you will still have the chance for appreciation if the real estate market rises.    And if you can get more money from your rental in Chicago than you are paying in Michigan, and if you get a good tenant, you should be able to save some money each year until you build up both a down payment, and a savings reserve so you can buy confidently.  Stick with it!



a personal
finance question