Today’s homebuyers, particularly first-time buyers, are looking for mortgage programs that provide convenience and flexibility. One of the most commonly sought programs is the 100% financing, zero-down loan. Lenders offer these loan programs, but it is truly buyer beware in most cases, because the lender may require PMI (private mortgage insurance) or other security measure and fees.
If your income and credit will be accepted by a rental agency for an apartment, then you can get approved to buy a home with no down payment. The reason that many people choose to rent instead of buy is that they believe they will need to have enough savings to cover 20% of the home’s purchase price in a down payment. Fortunately, lenders realize that most people (particularly those who do not already own a home) will be unable to come up with a 20% down payment and have designed programs precisely for that situation. Consequently, renters are advised to speak with a mortgage company to learn about available mortgage programs before signing a rental lease.
Be aware that a zero-down mortgage will probably not get you the most competitive interest rate. You will be paying a premium for the ability to borrow funds without providing security in the form of a down payment. The interest rate may be reduced with a down payment of as little as three to five percent, but you will always pay a higher rate for the privilege of not having a down payment. You will need to have excellent credit in order to qualify for a no-money-down loan with a competitive interest rate.
Many people do not realize that getting a no-money-down loan means that you will not be required to pay any closing costs. In this case, the lender is actually providing the borrower with more than 100% financing.
One of the ways that lenders help borrowers with little or no down payment is to provide them with what is commonly known as a piggyback loan. In this type of program, the borrower receives a mortgage loan equal to 80% of the home’s purchase price and a second mortgage loan that is equal to 23% of the purchase price.
If lenders can’t or won’t assist a borrower, a government guarantee program might allow the borrower to qualify for a zero-down loan or a down-payment assistance program. These loan programs are often very competitive and are usually open to low-income families and current or former members of the military.
A loan program that doesn’t require any money down has fairly high interest rates. However, today’s interest rates are low and dropping steadily. Therefore, buying a home with a no-money-down mortgage loan has never made more sense.
When you are in the market for a no-down-payment or zero-money-down home loan, carefully research lenders and their loan programs. Each lender is different and some specialize in the area of no-money-down loans.
If any of the following situations apply to you, then you might be eligible for a special first-time-buyer mortgage program that will provide you with a no-down-payment option or down payment assistance:
The following text lists the things that you will need to research before pursuing a zero-down mortgage. This information is important for every borrower, regardless of the type of loan, but it is much more important when you are trying to get a no-money-down loan.
Overall, a no-money-down loan program provides a great opportunity for first-time buyers and buyers with limited cash reserves. There are even programs for borrowers with shaky credit histories and those who are self-employed. No matter what your particular situation is, there is a lender who can help to make your dream of home ownership a reality. Just remember that if you can afford a monthly rent payment, you can afford to purchase a home. By considering important factors in advance and researching lenders and their loan programs, you will find a program that will work for you.
Even if you do not have adequate reserves to cover 20% of the purchase price, if your credit and savings history are in good condition and your income is documented correctly, most lenders will be more than happy to work with you to find a program to help you purchase your next home.