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Reader question: “We would like to buy a house later this year, but we can only come up with 5% toward the purchase price. This means we will need 95% mortgage financing to cover the rest. I’ve heard there are fewer lenders making 95% LTV loans these days. Is this true? And if so, what other options might be available for borrowers like us?”

The short answer is yes, there are still some lenders offering 95% LTV mortgage loans. While it’s true they might be harder to come by these days, they are still available in most states. We will talk more about this in a moment. But first, I want to explain the terminology being used here, for the sake of other readers who are less familiar with this topic.

Mortgage LTV Defined

LTV stands for loan to value. An LTV ratio is a numerical comparison between the amount of money being given for a loan, and the value of the property that is being purchased with that loan. More simply, LTV is the percentage of the home’s value being mortgaged.

So a 95% LTV mortgage is one that provides funding for 95% of the purchase price / home value. The borrower must come up with the remaining 5% out of pocket, in the form of a down payment. The loan-to-value ratio is basically the inverse of the down payment amount.

Is 95% Financing Still Available?

Getting back to your question, are lenders still making these loans? In a word, yes. But they are certainly harder to come by. In states like California that were hit hardest by the housing crisis, they may not be available at all.

If you do end up using a 95% LTV mortgage, you will probably have to pay extra for private mortgage insurance (PMI). As a rule, any single mortgage loan that accounts for more than 80% of the value will require insurance.

With that being said, there are ways to keep your down payment at the 5% level without paying extra for PMI. The piggyback strategy is one example. This is when you use two mortgage loans to cover the cost of your purchase, while coming up with 5% out of pocket.

For instance, you could use the 80-15-5 financing strategy to combine or ‘piggyback’ a first and second mortgage. The first loan is for 80% of the home value. The second loan accounts for another 15% of the value. The remaining 5% is paid by you, the borrower, in the form of a down payment.

In this scenario, the two loans combined add up to 95% LTV. But they don’t require mortgage insurance because neither loan accounts for more than 80% of the value.

FHA Loans Offer 96.5% Financing

We should also discuss FHA loans, as they are relevant to this discussion. These mortgages are insured by the federal government through the FHA (Federal Housing Administration). FHA loans offer more than 95% LTV financing. In fact, you can get up to 96.5% financing when using this program. FHA borrowers are required to put down at least 3.5% of the purchase price.

But here again, you will have to pay mortgage insurance on the loan. The only way to avoid the extra cost of insurance is to use one or two conventional loans, with no single loan accounting for more than 80% of the value.

Of course, if you qualify for a VA or USDA home loan, you could receive 100% financing. But I’m assuming you don’t qualify for those programs, since you are asking about 95% LTV options. I’ve only mentioned them for the benefit of other readers.

Disclaimer: Lending products, rules and regulations change frequently. We work hard to ensure the accuracy of all information presented on this website. But there is still a chance this information will become less accurate over time, as conditions and standards change within the lending industry. If you would like to learn more about your options for 95% mortgage financing, I recommend that you speak to a mortgage broker or loan officer.