Before the mortgage crisis took place, it was very easy for a lot of people to get home loans that didn’t require them to put any money down to get a mortgage and close on their new house. Now, zero down home loans are more limited. Fewer programs offer them, a lot of lenders don’t want to do them, and certain types of properties don’t qualify. That’s important to consider if you don’t have a down payment for your new home or you simply want to keep your money where it is instead of making a down payment with it. Here are a few things to consider with these types of loans.
What happened to zero down home loans?
In the past, before the mortgage crisis, it was relatively easy for a lot of buyers to get zero down home loans. Quite a few lenders, both big and small, offered these kinds of loans and the requirements for the loans weren’t as b as they are now. Once the housing bubble burst and so many people had trouble paying their loans, lenders started being much more careful. It’s still possible to get a home loan with no money down, but it’s definitely going to take more effort than before. You also won’t have as much choice when it comes to lenders, because many of them no longer offer these loans at all.
Are these the same as no-doc loans?
The zero down home loan isn’t the same thing as the no documentation (no-doc) loan. When you’re buying a house you need to provide a lot of documentation to prove your income, so you can get the loan. The no-doc loan was exactly what it sounded like. You basically just said how much money you made, and the lender took your word for it. The problem was that a lot of people inflated their income, and so they ended up with mortgages that they really couldn’t afford. As soon as one small thing went wrong, they started missing payments. If they used a no-doc loan and put zero down, they had little equity and little to lose other than damage to their credit rating. It was the lenders who were left with a lot of foreclosed properties.
Is putting zero down really a good idea?
Putting zero down may not be the best choice for a lot of home buyers. There’s no equity when you don’t put any money down, so if home prices fall even a little bit you already owe more on your home than it’s worth. That can make future refinancing a big problem. You may also pay a much higher interest rate if you don’t have money to put down on your mortgage, because you’re a higher risk than someone who has a good down payment. Still, for some buyers getting into a zero down loan can be the best choice. Your lender can help you decide.
What kind of credit report and score do you have?
Part of the process of buying a home involves getting a mortgage, and to do that successfully you want to have the best possible credit score. The better your credit report looks and the higher your score is, the more chance you have of qualifying for a zero down home loan. It can be very difficult to get a home loan of any kind of your credit score is poor, or there are problems on your report. Because of that, it’s even harder to secure a mortgage with zero down if your credit score is low or your report shows that you have paid your bills late or not at all in some cases. Taking time to improve your credit before you apply for a zero down loan can be very important.
Are you buying a more rural home?
With the rules changing and lenders still being cautious, it’s harder to get zero down home loans than it was in the past, but there are still some programs that offer that option. The USDA, for example, has zero down programs for people who are buying homes in smaller towns and more rural areas. With that in mind, you may want to check as to whether any homes in your local area would allow for a USDA loan. If they do, you can apply and potentially get into a home without putting any money down. These loans don’t work for everyone, though, and there are many properties that don’t qualify.
Should you wait until you get a down payment?
Another option is waiting until you have a down payment. It doesn’t have to be 20% to get you into a home, although you’ll have to pay private mortgage insurance (PMI) when you get a mortgage with anything less than a 20% down payment. The FHA offers a loan with only 3.5% down, and many lenders provide for 5% and 10% down payments for qualified buyers. That’s worth considering, since your loan and property options will be much more open if you have even a small down payment that you can provide. That way you can choose from a larger number of lenders and loan products that will work best for you. Then you’ll have the best chance of getting into a great new home.
2 Point Highlight
Before the mortgage crisis took place, it was very easy for a lot of people to get home loans that didn’t require them to put any money down to get a mortgage and close on their new house.
With the rules changing and lenders still being cautious, it’s harder to get zero down home loans than it was in the past, but there are still some programs that offer that option.
