When it comes to down payments, lenders want to see at least 5 percent down for a normal conforming loan of up to $417,000, according to Victor Benoun, owner of the Mortgage Source, a mortgage brokerage based in Studio City, Calif. "If you're borrowing more than $417,000, lenders want to see at least 15 percent equity in the property, although they're cutting that back to 10 percent to make up for a declining market," Benoun said.
Which makes FHA's 3 percent down payment requirement seem doable. In addition to having the cash for a down payment, Benoun said many first-time buyers are having trouble coming up with enough income to support their mortgage.
"Lenders would normally say they'd like to see 25 to 28 percent of your gross income going against your housing expense, and now that has been relaxed a bit more to include ratios of up to 40 percent of your gross income. Once you get past the ratio of 42 or 45 percent of your gross income, you may not be able to do a conforming loan," Benoun explained. "I have clients now who are self-employed and they're not showing enough income to qualify."
