Ask the Expert

I want to buy a $100,000 house. I have $2,000 to put down. But my bank won’t give me the loan because I need a higher loan-to-value ratio.

Lenders can finance up to 97 percent on a conventional loan, but on a 100,000 house, you’ll need a larger down payment for a conventional loan.
But let’s talk about Loan-to-Value (LTV).

LTV is the amount of money you are borrowing as a percentage of your home’s value.
Conventional loans can have an LTV of 97 percent. These conventional loans are great for people with high credit scores.

When people have low credit situations other kinds of mortgages might work.
You might qualify for a VA loan if you are an active-duty military person or spouse. This loan will finance 100 percent of the cost of a house.

A USDA loan will finance 100 percent of LTV. These loans are rural housing loans, but are also available in some suburban areas.

Finally, the FHA loan requires a down payment of 3.5 percent. This type of loan is great for people with lower credit scores.

The FHA loan has certain credit requirements. All of your current obligations, including mortgage payment and recurring payments like credit cards, can’t exceed 43 percent of your gross effective income. A low credit score, certainly a score under 500, would make an FHA loan unlikely. If you had a foreclosure or bankruptcy within the same year as you apply for a mortgage, you will likely be denied. Generally speaking, waiting three years after one of these events gives you the best chance to get mortgage.

Other elements can cause a mortgage denial, too, but one is that the down payment is not enough. You will also need enough money in the bank to cover closing costs.