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Today, it can be really difficult for you to find a zero down payment mortgage. Even the ones you can find are available to those who have proof of income. Also, their credit score should be at least 720. In fact, some lenders may require a higher credit rating. You can get more information from a good mortgage broker. In this article, we are going to take a look at some loan options and some alternatives. read on.
VA loan
Veterans and military families can go for VA loans. This type of loan has the facility of 100% financing. With this insurance program, you can get a loan up to a specific limit, which in most cases is $424,00. These loans require no down payment, but mortgage insurance may be part of the loan. Different vendors have different loan qualifications. Generally, your debt to income ratio should be around 41%.
USDA Rural Development Housing Loan
If you live in a designated area, you may qualify for a USDA Rural Development housing loan. These loans are allotted for the residents of remote areas, if you live in a nearby city then you can be eligible for these loans.
Your minimum credit score should be between 600 and 640 for this option. In addition, the advance loan guarantee is rolled into the loan balance. Hence cash will not be required at the time of closing.
navy federal loan
Navy Federal Credit Union offers 100% financing to qualified members who are looking to purchase a primary home. However, the downside is that only military personnel and their family members can apply for the offer. This program is similar to the VA except it has a lower funding fee of 1.75%.
When Should You Not Go For A No-Down-Payment Mortgage?
If you ask your mortgage expert, they’ll tell you that it’s important to note that these plans have their drawbacks. For example, if you finance the entire purchase of a home, keep in mind that your equity in the home will be zero. As a result, lenders may consider you a high risk borrower. Therefore, they may require you to obtain private mortgage insurance before signing you on the loan.
Keep in mind that if you default, it will cost you between 0.5 and 1% of the loan amount annually. Unlike mortgage payments, this expense would not be considered tax-deductible.
Often, mortgages with zero down payments have higher interest rates than traditional options. This is because lenders offer the best terms to those who can afford the down payment.
Zero down payment mortgage options
If you are not eligible for the down payment program, you can check out the following options. But make sure you discuss the matter with your mortgage specialist first.
local loan
Nearly all counties, states and municipalities offer a variety of incentives for homebuyers. These include down payment assistance, lower interest rates, closing cost assistance, or a combo of these.
Furthermore, many of these are limited to buyers who meet specific income levels while others are for first-time buyers only. In addition, some programs may address the needs of specific groups such as teachers and medical personnel.
While not all of these programs may be a perfect substitute for a down payment, know that some may offer interest-free loans or grants that can cover some portion of the down payment.
FHA program
For these programs, you will need to pay at least 3.5% upfront. However, according to FHA guidelines, the down payment must be funded in the form of financial gifts from a variety of sources, such as non-profit organizations, fiancees or relatives.
Similarly, the FHA also offers another great program called Good Neighbor Next Door for public employees, like police offers and teachers. And the best part is that the down payment is only $100.
piggyback mortgage
For this strategy to work, you need to have two loans. The first is to cover 80% of the purchase price of the home, and the second is to cover the rest of the cost. Before the subprime mortgage crisis, common practice was to have an 80/20% split.
On the other hand, things are tough today. Therefore, there can be a maximum of one scheme which has 80%/15%/5% loan. In this case, you get a primary mortgage to finance 80% of the purchase, while you get a home-equity loan or other mortgage to cover the rest. The remaining 5% is covered by the down payment.
wait and save
Another viable option is to postpone your dream of owning a home until you are able to make the down payment. In fact, if you work hard, you can save enough money to make the down payment. This is especially true if you’ve already set aside some money.
For example, you can withdraw up to $10,000 from an IRA, especially if you’re a first-time buyer. And the good thing is that you will not have to worry about the early withdrawal penalty of 10%.
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