Zero
Down Home Loans Becoming More Popular
by Jeanette Fisher
Even though the housing market appears to be
slowing down, many people still find that saving
up the 10-20% down payment to buy a home is beyond
their means, especially since the last several
years have seen home prices skyrocket. That's why
Zero Down loans are becoming increasingly popular
ways for buyers to get into their new homes. They
can be hard to find, but they're well worth the
effort.
A number of lenders have begun offering various
ideas for allowing buyers to purchase homes
without down payments. For instance, Wells Fargo
offers an 80/20 loan package, in which they will
extend a mortgage for 80% of a home's purchase
price along with 20% home equity line of credit
for the difference. Buyers have to pay a 1.1% fee
for the loan, but it helps them get into their
homes without having to come up with tens of
thousands of dollars.
Countrywide, America's leading independent lender,
offers no down payment loans of up to $422,300,
providing 103% financing on homes to cover the
closing costs. Wells Fargo makes similar loans
through their No Money Down Plus program.
Part of the impetus for banks offering special
mortgage terms to low and moderate income buyers
is the Community Reinvestment Act, which requires
lenders to provide a certain number of loans to
those buyers. However, since prices in many areas
of the country average more than $300,700, Zero
Down loans can be considerably more difficult to
locate.
One option is an 80/10/10 loan, which allows
buyers to avoid purchasing private mortgage
insurance (which can typically equal 20% of the
mortgage amount). Buyers are given a first
mortgage, usually for 80% of the home's value, and
a second mortgage or home equity line of credit
for 10%. However, they must come up with a 10%
down payment. (The Wells Fargo 80/20 loan
mentioned earlier increases the line of credit to
20%, and other lenders sometimes increase the
second mortgage by a similar percentage to
eliminate the need for a down payment. However,
the buyer must have excellent credit, a good job
history, and limited liabilities.)
There are government loan programs that can help,
too, although they only include loans of less
$300,700. For instance, Fannie Mae offers a loan
that only requires a 3% down payment (Flexible 97)
and a Zero Down loan (Flexible 100). Freddie Mac
offers similar loans, called Alt 97 and Freddie
Mac 100. There are no income restrictions, but
buyers need a FICO score of at least 700.
Veterans can get loans from the Department of
Veterans Affairs that don't require a down
payment, eliminate the need for private mortgage
insurance, and with lower interest rates. They can
borrow up to $240,000 to buy or build a home, but
they'll have to pay a funding fee of up to 2.75%.
Although you'll probably need to do some research,
there are Zero Down loan programs out there, and
if you're looking to buy a home but struggling to
come up with a down payment, they will be well
worth the effort and could help you get into your
new home much sooner than you thought.
Jeanette Fisher helps first-time home
buyers with credit issues to improve their
credit. She also teaches beginning real
estate investors how to qualify for multiple
real estate loans.
Free "Credit Tips
for Mortgage Financing" at
Real
Estate Credit Help Center.
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