June 6th, 2019 10:09 AM by Jackie A. Graves, President
A zero down
payment mortgage is exactly what it sounds like: a mortgage that requires no
money down at closing. Buying a home and putting no money down to do it sounds
appealing to many, but in reality it’s hard to get a zero down payment mortgage
in this climate, as banks no longer offer them to most consumers. Hard,
however, doesn’t mean impossible. Here’s how you can score a zero down payment
mortgage — and the pros and cons of getting one.
will qualify for a zero down payment loan, but in circumstances, you might be
able to buy a house with no money down.
If you’re a
veteran, you might be able to get a VA loan with no down payment from the U.S.
Department of Veterans Affairs (VA). In order to qualify for the loan — you’ll
need good credit, enough income and a Certificate of Eligibility from the VA — but if you do, you may be
able to enjoy these perks: no down payment on the home (as long as the sales
price isn’t higher than the appraised value of the home), no private mortgage
insurance premium and limited closing costs.
option for a no down payment loan is a USDA loan. The United States
Department of Agriculture offers a variety of these loans with low interest
rates. Most of the loans are designed to help low- or moderate-income people
with decent credit buy a home in a rural area.
Two of the
more popular USDA loans are the single-family direct homeownership loan and the
single-family guaranteed homeownership loan.
single-family direct homeownership loan is for low- or very low-income
borrowers purchasing homes in rural areas. Eligible properties must
be 1800 square feet or less with a market value below the applicable area
limit. No swimming pools or properties designed for income-producing
activities are allowed. The household adjusted income of the borrower must
not exceed the applicable low-income limits for the area.
guaranteed homeownership loan helps those with incomes that are below 115
percent of the median income for the area buy modest homes in rural areas.
If coming up
with a down payment is a struggle, an alternative to buying a house with
no money down is an FHA loan. The FHA does not offer a no-money down loan.
However, they do allow for loans with a down payment as low as 3.5% of the
home’s purchase price. Lenders offing a FHA loan are also restricted in the
fees they are allowed to charge you.
The perks of
a zero down payment mortgage are simple: You can get a mortgage to buy a home
without having to put any money down. This means those without savings could
buy a home. Though that sounds appealing, it does come with downsides. For one,
you’ll have no equity built up in your home at the time of purchase, so you
won’t be able to do things such as take out a home
equity loan or home equity line of credit if you need to do
home repairs or have other expenses you need to take care of. Plus, you’ll
likely be paying off this home loan for longer than someone who had put money
down would, which means you’ll likely be paying the bank thousands more in
interest payments over the life of the loan.
buyers will need to put down at least 3 to 5 percent or more of the
cost of the home to get a mortgage. But no matter what kind of loan you get —
with a down payment or without — make sure you can truly afford the mortgage
payments and the other costs of homeownership (insurance, repairs, etc.) every
month. Use Zillow’s free mortgage calculator to help
estimate your monthly mortgage costs or our affordability
calculator to determine what you can truly afford.
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