Good Credit Opens the Door

Dear Pat,
We're newlyweds, and anxious to buy our first home. We have good incomes, but the wedding tapped out our savings. We understand that the banks won't allow us to borrow a down payment. Is there an answer for us, or do we just have to wait?
--Itching but No Scratch

Dear Itching,
Relax. No-scratch relief is available in these times of plentiful money. But first, here's a simple primer on mortgage lending requirements. The bank looks at three factors when considering your loan: your income, the size of your downpayment, and your credit history. If you are strong in two of the three you can generally get a loan, but good credit is by far the most important.

A great option for people like you, with high incomes but little cash, is a combination of two loans that make it possible for you to buy with zero down. Here's how it works: the lender arranges a traditional first mortgage at 80% loan-to-value and a 20% equity line simultaneously. This eliminates the need for private mortgage insurance (PMI), which is required with down payments of 20% or less. With this program you'll need to have excellent credit. And plan to pay a somewhat higher interest rate on that second mortgage—most equity lines are running a few points above standard mortgage rates—but your blended rate should still be better than most of us were paying just a year or two ago.

For anyone with the opposite problem-lots of cash, but an income too low to qualify for a given monthly payment-lenders now have available a "stated income" loan. By virtue of your substantial down payment (20% or more) and your excellent credit it will accept your "stated" income without verification. Expect to pay about ½% above market rates for the privilege. Higher, yes, but it still looks like a giveaway to those of us who struggled for the requisite cash, income and credit during the tight money years-to get a 12% mortgage!