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July 9th, 2011

You can still get a mortgage with no money down

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Zero downI know that title may sound hard to believe given all the talk and discussion these days about added lending restrictions, higher credit scores and having enough “skin in the game.”

The ongoing debate over qualified residential mortgages mainly concerns whether borrowers will have to have at least a 20 percent down payment.

All that said, borrowers still have several options when it comes to getting a home loan with little to no money down. HSH staff writer Gina Pogol takes us through each of the available options in her latest article, “Zero-down mortgages are not extinct!

1. USDA mortgages:

USDA loans are 100 percent zero-down mortgages designed to make it easier for people to buy homes in rural areas of the country. To get a USDA mortgage, your property must be eligible (primary residence in a designated rural area) and you must be eligible too (income cannot exceed 115 percent of the median household income for your area). Perhaps to your surprise, much of the U.S. is considered rural. To see if your area qualifies, you can check the property’s eligibility on the USDA website. You can check your income eligibility as well.

Unlike the VA and FHA home loans, the USDA sometimes actually lends you the money to buy your home. This is called a Direct Loan. A Direct Loan comes with a term of up to 38 years and the interest rate is set by the government. For those of you with low or very low incomes, your mortgage payments could be subsidized as well.

2. VA mortgages:

VA loans require no down payment and no mortgage insurance. You can get them from VA-approved mortgage lenders, including banks, credit unions and mortgage companies. Those eligible include:

  • Veterans
  • Active duty personnel
  • Reservists/National Guard members
  • Some surviving spouses

For detailed information, check out the VA’s Eligibility Rules page. To apply for a VA loan, you need a Certificate of Eligibility, which can be obtained online, through your lender or by mail.

It is important that you understand that because VA home loans are made by private mortgage lenders, you are not entitled to a loan just because you have a Certificate of Eligibility. Your income, credit and assets must meet underwriting guidelines. Also, the VA does not regulate mortgage rates, so you need to shop around for rates to get an idea of what you should be paying.

3. FHA mortgages:

FHA mortgages require down payments of at least 3.5 percent. However, there are many programs that provide down payment assistance to first-time homebuyers (usually defined as those who have not owned a home in at least three years).

There are also programs offering assistance to those who meet certain income restrictions and those who buy in areas that provide incentives to purchase homes. To find these programs, check out HUD’s state and local home buying programs pages.

In addition, the Good Neighbor Next Door program allows those who qualify (teachers, police officers, fire fighters, and EMTs) to purchase homes in certain areas at a 50 percent discount. This can be combined with any other down payment assistance or financing you qualify for (VA, FHA, USDA, conventional). You have to purchase a HUD home (a home owned by the agency and located in a designated Revitalization area) and live in it as your primary residence for at least three years. You can search out HUD homes online.

Be sure to read Gina’s article, ”Zero-down mortgages are not extinct,” in its entirety to learn more about each of the above options.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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