Have you heard a mortgage lender or Realtor talk about a “declining markets policy” lately? A declining markets policy is a policy by a bank or private mortgage insurance (PMI) company, which says that in a real estate market with declining values, you cannot get maximum loan-to-value (LTV) financing on a Conventional loan. Most banks and PMI companies have defined all of DC, different parts of MD and most of Northern Virginia as declining markets.

The mechanics of this means you have to put an extra 5% down payment down in some situations, on a Conventional loan.

On Conventional loans up to $417,000 (called Conventional Conforming loans) you used to be able to borrow up to 95% LTV and put 5% down payment down. In a declining market, you now have to put 10% down payment down.

On Conventional loans up from $417,001 to $729,250 (called Jumbo Conforming loans or Conforming Extended loans) you used to be able to borrow up to 90% LTV and put 10% down payment down. In a declining market, you now have to put 15% down payment down.

One answer to avoiding these increased down payments on Conventional loans is to instead get an FHA loan. However, FHA loans come with much higher PMI costs. However, if you want to avoid having to come up with a larger down payment, FHA is the answer. See below for an example: Read the rest of this entry »