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Seattle Times business reporter Elizabeth Rhodes posts the answers to your real estate questions as they pop up during the week. Join this ongoing discussion, which also features reader reaction to real-estate articles appearing throughout The Times.

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October 23, 2008 8:00 AM

Homeowner lacks big down payment

Posted by Elizabeth Rhodes

Q: We'd like to buy a home in a better school district and keep our current paid-off home as a rental. Our problem: we don't have enough cash for a large down payment. Will a lender OK a small down payment because we have a paid-off property?

A: The deciding issue isn't your paid-off home. It's your creditworthiness, says Deb Toepfer, mortgage production manager for BECU (formerly called Boeing Employees Credit Union).

Due to the current credit crunch, very low down-payment requirements are pretty much kaput. Now you'll need 10 percent down, plus closing costs, Toepfer says.

However, if your credit is strong -- we're talking a FICO credit score of at least 720 out of 800 -- a lender may give you two mortgages, a primary one for 90 percent of the home's value, and a second for up to 10 percent, allowing you in essence to buy the house with nothing down.

But you'll still need cash for closing costs.

A lesser credit score means you must have your own down-payment money, Toepfer says.

Loan availability isn't what it was a couple of years ago, but lenders say mortgage money still is available to creditworthy borrowers. Rates and programs change frequently, so it pays to shop around to see what you can get.

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