New options for buyers who can't come up with the 20 percent down payment

By Virginia K. Smith  | March 15, 2016 - 1:59PM

For some time now, one of the biggest obstacles keeping first-time buyers out of the market has been the standard-issue requirement of a hefty down payment of 20 percent of the purchase price. Even if you could easily swing the monthly mortgage payments on an apartment, coming up with a massive chunk of cash up front is a tall order in this city for all but the most dedicated savers (or, well, people who can borrow money from their parents). And besides, most new homeowners would feel safer with an extra cushion of cash in the bank (at least to help pass the co-op board gauntlet), rather than having just blown the entirety of their savings on the down payment.

Thankfully, the options for getting around this massive roadblock seem to be expanding. In addition to standbys like SONYMA and FHA loans (more about those options here), both of which allow buyers of certain income levels to buy with just a three-percent down payment, more lenders are coming up with creative ways around the problems, as the New York Times reported over the weekend, and without the pricey requirement of taking out extra mortgage insurance, which can cost between 0.3 and 1 percent of your total loan amount anually.

"Where we’ve seen the biggest change is in the appetite of jumbo lenders in the private sector to allow for 90 percent financing, which we hadn’t seen be this widespread since before the crash of 2007 to 2008," one lender from Sterling National Bank told the paper. 

For instance, Bank of America recently launched an affordable mortgage program that allows buyers to borrow for as low as three percent down, though it's tied to income caps based on area medians; in NYC, that means families making more than $80,700 may not qualify. Interest rates for Bank of America's low down payment loans can also be slightly higher than the norm, as is often true across the board with options that allow you to pay less money up front. (You knew there had to be some kind of catch, didn't you?) Similarly, SoFi, a lender formerly focused on student loans, has a program that allows for down payments as low as 10 percent on properties up to $3 million, again, with slightly higher interest rates.

As always, you're likely to find more flexible options with a local credit union than with a larger lender, and many will be willing to work with your specific strengths as a buyer rather than sticking hard and fast to Fannie Mae and Freddie Mac guidelines. Another option is to find a trusted, cash-rich person (ideally a family member) to co-purchase the property along with you, as one New Yorker told us, or to simply look in a building where the rules might be looser about down payment size, like a condo building, or on the opposite end of the spectrum, an HDFC co-op. In any case, this doesn't mean you can scrap your current savings plan altogether (sorry), but it does mean you might be able to hop onto the property ladder sooner than anticipated.


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