Can You Still Buy A Home With Zero Down?

With the overall economy tanking in 2008 in large part to the sub-prime mortgages, its makes sense that credit would tighten for potential borrowers - and it has.  This has made the overall process of obtaining a mortgage more difficult but you can still qualify.  There are some great low & zero down mortgage opportunities that are currently available thru both federal & state government programs.  Additionally there are some conventional lending programs where you can get a zero down mortgage.  Note, however, that there is a trade-off that occurs with zero & low down mortgages.  The lender is taking on more risk thus they will want somethinig in return.

This post originally appeared on ReadyForZero.

Many home buyers began turning to FHA loans (which require as little as 3.5 percent down as of this writing) once the number of zero-down mortgages began drying up.

Now that the Great Recession is fading away, things are changing again. Just as many home buyers thought that the FHA loan required a too-high down payment prior to the mortgage market problems, that mindset is creeping back—since it's possible to find zero-down home loans again. Just remember, if you do get a mortgage, make a plan for how you're going to pay those payments and track your plan using a tool like ReadyForZero.

Conventional Lending and Zero-Down Mortgages

While it's not exactly easy to buy a home with no down payment in the current climate, it is possible if you can show that you have adequate income and a good credit score. You'll also have to be willing to pay a higher interest rate. The price you pay for having no "skin in the game" is a mortgage rate that ensures that you'll pay extra tens of thousands of dollars over the life of your home loan compared to borrowers who have down payments. You will also probably need to purchase private mortgage insurance (PMI).

In some cases, lenders will get a little creative with the financing. You might be able to take out two mortgages: The first is for 10 percent or 20 percent (depending on the lender) of the purchase price. This serves as your "down payment"—even though you aren't actually putting anything down. The other loan is for the remainder of the purchase price. But before you do this, realize that the interest rate on the small mortgage serving as your down payment will probably be higher than the rate on your "real" mortgage.

There are other creative ways to avoid the down payment, from getting a gift from a close relative or friend, or participating in local housing programs that allow you to use "sweat equity" to help pay for your home. In the latter case, you do some of the work building your house, and helping build others' homes, and in return you don't have to worry about a down payment.

Government Programs and Zero-Down Mortgages

On the other hand, if you qualify for certain government programs that could provide an avenue for you to buy a home with no down payment. One of the most popular loan programs that allow you to buy a house without a down payment is the VA loan program. This program is only available to military veterans and to their surviving spouses. Depending on your credit situation and income, you might qualify for a zero-down VA loan.

There are also government programs that will help you buy a home with no down payment if you are willing to buy in qualified rural areas, or in qualified high-crime areas. These programs are designed to help bring greater prosperity to certain areas with the introduction of homeowners. If you take the risk in rural or high-crime areas, you might be able to get a low-cost home without the need for a down payment.

As with all mortgages, zero-down home loans require that you show that you have good credit, and that you are likely to handle the payments. Someone is taking a risk on you, whether it's a conventional lender, the government, or even the seller.

But Should You Buy a Home With No Down Payment?

Now that you know there are options for buying a home with no down payment, the question remains: is it a good idea?

While many individuals and families are eager to begin their new life as homeowners, it's usually a good idea to wait until you have a down payment so that you can start that new life on stronger financial ground.

Can You Buy a Home with No Down Payment? | ReadyForZero