How to Get a Zero Down Mortgage to Become a Homeowner

The top no money down mortgage programs available, USDA mortgages for rural homes, 100% no MI program from navy federal credit union and the popular home buyer grant that covers the 3.5% down payment when used properly with an FHA mortgage. After the financial crisis, lending standards for getting mortgages tightened and 20% down payments were quite common. Amassing a down payment of that size can be challenging for people who are paying rent, child care expenses and so on.

However, in recent years, there are more options for potential homeowners who do not have 20% down payments. The zero down mortgage options are not as common as they were at the height of the housing boom but there are a few options available. And if you have enough to put down at least 3% to 5%, you have many options to choose from. To qualify for these programs, normally you need a minimum credit score of 620 but a 720 or higher is ideal. In some cases, lenders will take a big risk with a no money down loans for people with poor credit.

Some of the best options today for zero down mortgages so you can become a homeowner are:

USDA Rural Development Loans: These special 100% financing loans are available through the United States Department of Agriculture in certain rural areas of the US. You must meet credit and income requirements, but they are relatively easy to meet. The property must be in an area designated by the USDA to be eligible. A USDA loan guarantee fee of 3.5% is required, but you can wrap the fee into the loan balance so you do not need cash at closing.
VA Mortgages:If you are a military veteran in the US or are a current member of the military, you can get 100% finances with a zero-down payment program. You also do not have to pay mortgage insurance, although you will need to pay a funding fee of a few thousand dollars that is wrapped into the VA home loan.
State and local homebuyer programs: Many states have zero down mortgage or low money down home buyer programs. Usually these programs have limits on total income and you will probably have to take a home buyer class. You can check the National Council of State Housing Agencies website to find a program in your state.
FHA-backed loans with down-payment assistance:Mortgage loans that are backed by the Federal Housing Administration are available at many mortgage lenders, and these FHA loans feature down payments as low as 3.5%. Credit score requirements are quite flexible, with someone with as low as a 620 FICO score able to qualify for a low money down loan. Your debt to income ratio required for these loans is also quite flexible. The Federal Housing Administration insures some of the best available opportunities for consumers that have credit issues in the past and do not have a lot of money for a down payment.
Conventional 5% down with a grant: While $0 down mortgages are rare in the conventional finance market, there are plenty of 5% down conventional programs out there. You will need to show that you have good credit and have the income to pay back the loan.

Sources for Down Payment

If you do not qualify for a 100% financing, zero down mortgage, you still may need to come up with a small down payment. The good news is that for many loan programs, you can get most or all of the down payment from gift funds. For example, FHA insured mortgages can have gift funds as the source for the down payment. A down payment on a $198,000 loan would be $6,930. For conventional lenders, you will need to have a 5% down payment and that may not generally come from gift funds. However, if you do make a down payment larger than 20%, it can come from gift funds.

The Reality

Before you start looking for a zero down or low money down mortgage, you should be sure that you can afford the payments that your home loan will require. Note: If you do get zero-down mortgages, you will not have any equity in the property until you start to pay down the mortgage and/or the home increases in value. Be sure that you do not need to sell the home for a minimum of three years because it will take that long at minimum for you to grow equity.

If you are going to qualify for zero-down financing, note that this does not mean that you should have minimal savings when you buy your home. If you have no savings, you will find it challenging to own a home. Plan on having at least three months of living expenses saved up before you buy your home. The lender you choose also will want to see that you have cash reserves as well. - Written by James Swift