Mortgage Lending Guide: No Money Down Home Loans
No Money Down Loans
No money down loans come in different varieties, depending upon the lender you're using, so ask questions and make sure your loan consultant knows exactly where you stand.
You do need to have good credit to be considered for these programs, and you will pay a higher interest rate because your loan will be considered a higher risk.
Be aware that the term "No money down" can be deceptive. It doesn't necessarily mean "No money at closing." Closing costs are the reason.
Years ago the Veterans Administration advertised Zero down for veterans, but failed to tell them they would be required to pay closing costs. Many veterans were bitterly disappointed when they were denied a home purchase for want of a few thousand dollars. Rules have changed since then, and now sellers are allowed to pay closing costs on behalf of veterans.
Few lenders offer a conventional loan that truly requires no money at closing. In most cases you will be required to at least pay for your first year's property insurance, plus 2 or 3 months of property insurance and property taxes. These items are known as "prepaids."
A few lenders do offer conventional loans at 100%, and most conventional loan programs allow the seller to pay up to 3% of the selling price in buyer's closing costs, so you could close owing only the "prepaids." This effectively rolls the closing costs into your loan balance.
If you ask for this concession, it is probably best to offer full price, or slightly higher, depending upon the true appraised value of the home. Some sellers have trouble understanding this concept. That's when your Mouse House Mortgage loan advisor's expertise comes in handy. He can explain the benefits to the sellers or their agent.
Another way is the 80/20 system. The primary lender finances 80% of the loan while the secondary lender finances the other 20%. Again, you can ask the seller to pay 3% toward your closing costs.
Yet another program allows a seller carry back for a portion of the selling price. Lenders have strict rules about repayment, requiring the seller to carry the note for a fixed period of time. The lender then figures this payment in to your debts when determining your debt to income ratios. You are, of course, free to pay off that second if you happen to have a windfall.
Some sellers, especially if they have a large equity in the home, are glad to get most of their money while earning a good rate of interest on the balance. This is especially useful to sellers in a slow market.
Mouse House Mortgage is a free service for people who are looking for a
mortgage loan with favorable rates, whether you have excellent credit or bad
credit. A friendly mortgage advisor will help you navigate your options and
access the best mortgage rates for your situation.
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