Buying a Home with Nothing Down
Historically, buying a home without a down payment has been nearly impossible. One of the only options was a Veteran’s Administration (VA) mortgage which are available only to qualifying veterans of the U.S. armed services. Those non-veteran buyers who did not have at least a 3-5% down payment were forced to wait until they had enough funds to handle both the down payment and closing costs, generally a total of around 10% of a home’s selling price. As these buyers were saving for their down payments, housing prices were constantly on the rise, making it more expensive when they had the funds necessary to purchase a home.
In recent months, though, there has been new availability of zero-down loans in the conventional mortgage arena. You will still need cash for closing costs (around 3%) but these new loans can be a lifesaver for those who have good credit, reasonable income and little cash. You’ll need a very good credit rating (a credit score of 700+), your debts will need to be in line with your income (including the new mortgage) and your mortgage amount will need to fall under the maximum allowable ($275,000). For those who qualify, though, a 100% LTV (loan to value) mortgage can be an easier step to homeownership.
Virtually any mortgage source (online or offline) that deals with conventional mortgages will have these new products available. (You can find more information on the subject on the choosing a mortgage page).
A few cautions: As mentioned above, you will need a very good credit rating to take advantage of these mortgages. In addition, if your debt-to-income ratio is higher than the standards (around 41% including all debts) then you may want to concentrate on decreasing your debt load. Finally, if you have thoughts of moving to another home in a short period (say less than 3-5 years) then these 100% LTV mortgages are almost certainly not for you. Since you are financing the full current price of the home, should you need or want to sell in a year or two it is very possible that you could not accomplish the sale without digging into your pocket to pay selling expenses, since your mortgage balance will be near (or more than) the value of the home.