Home Buying — Purchasing a Home With no Money Down
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As real estate prices soar, many prospective home buyers are finding it difficult to come up with the necessary down payment to buy their home. Luckily, there are several options that can help you get that mortgage with little or in some cases no down payment.
Various banks and lenders offer what is known as 100% financing programs. This is probably what you are being sold if you hear “no money down” advertised. The major drawback to these arrangements aside from the obvious higher monthly mortgage payments and lack of equity is that you will be required to carry private mortgage insurance.
Private mortgage insurance, also known as PMI for short can add an additional $50 – $100 per $100,000 borrowed per month on to the cost of your mortgage. As you can plainly see, this cost adds up fast. PMI is designed to protect the lender not the homeowner. The only benefit PMI gives you is that by paying for it you can qualify for a loan you might not otherwise be able to get.
Traditional 100% financing programs also come with higher rates and closing costs. This makes sense because as the risk to the lender is higher, you can expect that you will be paying for it. In the case of a no money down mortgage, you will face additional qualification requirements. Typically only those with excellent credit are eligible for a no money down home loan.
A 100% financing program may not be your only option. The Veterans Administration offers mortgage programs that feature similar benefits. If you are a qualifying veteran, you may be eligible for one of the VA’s low and no money down programs. With a VA loan, there is no limit on the amount you can borrow and unlike in the old days, you can get more than one VA loan over the course of your lifetime.
If none of these options meets your needs, it may be time to consider a little creative financing. In times when the real estate market is slower and homes are not selling well, it is not uncommon to find deals such as rent to own and owner financing. In the case of rent to own, typically you pay a higher monthly payment to the owner with a pre-determined portion of that going in to a down payment savings account. In some cases, the seller will even offer to hold your mortgage outright.
Creative financing options such as the seller financing and rent to own can be beneficial for both parties. The seller makes a profit on the deal and you can get in to a home in a situation where you might not otherwise be eligible for a traditional mortgage. If you decide to go this route and are fortunate enough to find a seller who will work with you be sure to see a lawyer to have the agreement written up in a fair and binding way.
As you can see, there are options for buyers who have little or no money available for a down payment. It may not always be as simple as it sounds like in the advertisement and there are drawbacks to consider, however it is possible to buy a property without putting money on the table at first.
