Baltimore HUD Homes Blog

Is it time to stop paying someone else’s mortgage payment?

Now that the housing market appears to be slowing down, rental prices are going up. Many renters find that saving up the 10-20% down payment to buy a home beyond their means, especially since the last five years have seen home prices soar. That’s why Zero Down loans are becoming increasingly popular ways for buyers to get into their new homes.

A number of lenders offer various programs for buyers to purchase homes without down payments. For instance, 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. 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.

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.

Copyright © 2006 Jeanette J. Fisher