First time home buyers, you have cause to be grateful as low down payment, conforming loans are back. This means that if you have less than 20% saved toward your down payment, you aren’t stuck needing to utilize FHA backed financing. FHA insured mortgages can be a wonderful thing for home buyers in particular situations (such as not having enough of a credit history), but they are costly – especially now, with the requirement that the mortgage insurance stay for the life of the loan. Buyers with FHA financing also are less desirable to sellers and listing agents as FHA has stricter requirements than conventional lenders.
Being able to purchase a condo or house with 5% (or possibly less) using conforming loans will open a lot of doors – at least in theory. In our crazed Silicon Valley sellers’ market, though, where multiple offer situations are the norm, having a high loan to value ratio may get you on the list of bidders to be eliminated. San Jose area sellers want large downs, or better, all cash buyers. It’s hard to compete with that!
The smaller your down payment, the more important it is to either avoid multiple offer bidding situations altogether or to aim at properties with lower numbers of offers. What may help you most is targeting condos, townhomes or houses which have been on the market a month or more, as these seldom will have more than one contract presented at a time unless there’s a price reduction. You and your real estate agent may also target the homes which are not offered via the multiple listing service (yes, they are harder to find), whether represented by another Realtor or licensee or sold without professional representation (aka, a FSBO).