What You Need to Know About Zero Down Payment Loans

What You Need to Know About Zero Down Payment Loans

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Prior to the Great Recession zero down payment home loans or mortgages were available, what helped many consumers attain homeownership, people who would might otherwise have been shut out of home ownership. Unfortunately, lending standards were relaxed to help qualify as many people as possible. Disaster soon hit and millions of homeowners soon found themselves in jeopardy of losing their homes.

Zero down payment loans are no longer easy to find, but they’re still out there. Keep in mind that if you obtain such a loan, you won’t have any equity in the property so taking out equity loans for repairs and improvements will not be possible.

For American Veterans

If you served in the US military, you may qualify for a zero down payment loan through the US Department of Veterans Affairs. Known as VA loans, you may qualify for a loan with small up front costs. That means no down payment, no private mortgage insurance, but small closing costs.

To qualify you need to have good credit, sufficient income and have been deemed eligible for a loan from the VA. Provided that the sales price is no higher than the home’s valuation, you just may find yourself the recipient of a zero down payment loan.

Rural Area Home Loans

If you live outside of the city or a metropolitan area, you may qualify for a low-interest home loan from the US Department of Agriculture. USDA loans target people in rural areas with low or moderate income, individuals with good credit, and those with a specified need.

For instance, you may qualify for a Rural Housing Direct Loan (Section 502) target people without sufficient housing, but able to afford mortgage payments, taxes, and insurance. To qualify, you must prove that you were not able to obtain credit elsewhere, but still have a “reasonable” credit history.

Your Bank

Most commercial banks no longer offer zero down payment loans. Following the housing industry collapse of 2007-2009, federal lending rules were tightened considerably. Essentially, banks require consumers to have some “skin” in the game, which means that you’ll have to come up with some money to apply toward your down payment.

One possible way to get a home with no money down is to work directly with the homeowner. You may find someone willing to sell their home to you and hold the mortgage. This may be possible where the home might otherwise not sell and the owner is anxious to get out. One possible way that this might work out would be to have a balloon mortgage where the owner provides a three- to five-year loan that comes due at the end of term. By then you may have two things going for you: an equity stake in the home and improved credit, with banks clamoring to issue you a new mortgage.

Your Home, Your Money

If you do not qualify for a VA loan or a USDA loan, your best option is to save up enough money for a down payment. It is always better to get started with some equity in the home instead of none at all — that equity can be tapped for needed repairs and for improvements that you might want to make.

See AlsoStaying Put: Your Small Fortune and Home Improvement

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About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".