High Ratio Loan

A “high ratio loan” is a big loan with a small down payment. One clarification: when we say “small,” we don’t necessarily mean the amount of the down payment is small...we just mean it’s a small percentage of the overall loan amount.

For example, let’s say we take out a loan to buy a cute little two-bedroom cottage near the beach in San Diego for $2,000,000. What a bargain, right? If we agree to put 10% down, that’s considered a high ratio loan, even though our down payment is $200,000, which is not a small amount of money by any stretch.

The general rule of thumb here is that any mortgage loan requiring a down payment of less than 20% is a high ratio loan. While most standard mortgage lenders want us to put 20% down (or more, if we can swing it), there are certain types of home loans—FHA loans, for example—that mandate we put down a lot less, sometimes as little as 3%. Now that’s a high ratio loan.