Below are 9 different types of zero down mortgage that you can qualify for. Each one has
positive and negative aspects. Read and learn about which zero down mortgage will suit you best.
80/20: The 80/20 loan is simply an 80% first mortgage with a 20% second mortgage for a total of
100% financing. In other words you are getting two loans. This is the most common no down mortgage.
The positive aspect of this loan for a subpime borrower is that the interest is typically much
lower than a 100% one loan.
This zero down mortgage is a beneficial loan for conforming borrowers because it will help you
avoid mortgage insurance. Mortgage insurance is an insurance policy that you pay and that is of no benefit
to you. It simply protects the lender in case of default/foreclosure. Sub-prime loans almost never have
mortgage insurance, but be sure to ask.
The negative side of this loan is that you will pay two different sets of closing costs, which
could tack on an extra couple of thousand dollars.
Also many people are afraid of having to make two different payments. Have no fear. You are more
or less paying the same amount as if it was one loan and typically they are due at the same time.
One final thing to think about is that the second mortgage interest rate will almost always be
significantly higher than the first mortgages interest rate.
The seller can typically pay 3% of the purchase price of the home towards closing costs with a
conforming loan. With a sub-prime loan the seller can typically pay 6% of the purchase price towards
closing costs.
100% One Loan: This type of zero down mortgage is pretty straight forward. It is simply one loan
for 100% financing of the purchase price.
Unfortunately sub-prime borrowers will typically pay a much higher interest rate than they would
with the 80/20 home loan.
For conforming borrowers the down side is that you will pay mortgage insurance which can range
from .55% to 1.94% of the loan amount. The benefit for conforming borrowers is that the interest rate
will be lower over all since you will not have a second mortgage. Plus once you have 20% equity in the
home you can get the mortgage insurance taken off.
The seller can typically pay 3% of the purchase price of the home towards closing costs with a
conforming loan. With a sub-prime loan the seller can typically pay 6% of the purchase price towards
closing costs.
2/28 or 3/27: This loan is a very common zero down mortgage for sub-prime borrowers but
conforming borrowers can take advantage of this loan as well. This loan is an Adjustable Rate Mortgage
also known as an ARM. What this means is that the loan's interest rate is fixed for the first 2 to 3
years of the loan, and then is fully adjustable for the remaining years of the loan.
These loans have caps, meaning they can only fluctuate a fixed percentage per adjustment and have
a max in the percentage that they can rise for the life of the loan.
A quick example of this would be as follows. Lets say you have a 2/28 loan and the interest rate
is 7% with caps of 3% and 6%. So with the first cap being 3% it can only rise a maximum amount of
3% per adjustment. The second cap of 6% is that the interest rate can only rise by a maximum of 6% for
the entire life of the loan. So the worse case scenario is that your interest rate would rise from 7% to
13%. But remember it can also fall as well.
I refer to these types of zero down mortgage as band-aid loans. It gets you into a house and at
the end of the 2 or 3 year period you can refinance. Hopefully at this time you are now a conforming
borrower and you will qualify for a fixed home loan at a lower interest rate.
The seller can typically pay 3% of the purchase price of the home towards closing costs with a
conforming loan. With a sub-prime loan the seller can typically pay 6% of the purchase price towards
closing costs.
VA Loan: The VA is 100% financing and has no mortgage insurance. Unfortunately you will need to
be a veteran to qualify for this zero down mortgage.
The good thing is that this type of zero down mortgage is underwritten on a case by case basis.
So even if you don't have great credit or have other issues such as not having any credit at all, you
still have a good chance of getting one of these loans.
Seller can pay all closing costs.
USDA Rural Housing: These 100% loans were once known as farm home loans. They offer zero down
mortgage financing and are also underwritten on a case by case basis.
To qualify for one of these zero down mortgage you normally need good credit, but not always. All
collections and charge off's will need to be paid. The property can not be located anywhere the USDA
(United States Department of Agriculture) deems urban.
There are also income limitations with this program as well as certain criteria that the home
must pass.
Seller can pay all closing costs.
Emerging Markets: This is another awesome zero down mortgage. This program is especially useful
for home buyer's who have limited or no credit at all. Through this program they allow you to build
alternative credit through other bills such as an electric bill, phone bill, rent etc.
There are some income limitations to this loan depending on where the home is located. The
income limitations are higher than those with the Rural Development Program.
Seller can pay up to 6% of sales price towards closing costs.
State or Local Financing: Some states also offer a zero down mortgage. These loans come and go
depending on funding. They are definitely worth looking into.
For example Oregon has the Oregon Bond Loan.
The requirements for these types of loans will vary but they will be more strict than some of
the other types of 100% financing that are available.
You might need to do some footwork for this type of zero down mortgage. You may be surprised to
find that your loan officer has never heard about these programs. Because these loans are government
sponsored you will need to call, write, or go down to your local government offices. Below are some other
government agencies you can contact for special programs.
HUD/FHA 451 7th St. Washington, DC 20410 www.hud.gov
Fannie Mae 3900 Wisconsin Ave. NW Washington, DC 202-752-7000
www.FannieMae.com
Freddie Mac 8200 Jones Beach Drive McLean, Virginia 22101
www.FreddieMac.com
When you contact your local government agencies about the zero down mortgage. You should also
ask about special purchase programs they may be offering as well. Many times government agencies will
work with several of the local contractors to build affordable housing.
Basically the government gets a special rate from the contractors and then will subsidize the
remaining amount to offer the homes at a much lower cost. For example a home may be worth $125,000 but
the government will sell it for only $85,000 to those that qualify.
You can also contact you local building associations to find out about other special programs
that they may be involved with. Just look in your phone book for state or local builder associations.
FHA Loan: The FHA loan is not actually a 100% financing loan. They do require at least a 3% down
payment. You can use down payment assistance programs to cover the 3% plus your closing costs.
Most people are under the assumption that the government is the one loaning the money. In
reality they are insuring the loan in case of a loss. So if you no longer made the payments and the
house was foreclosed upon the government pays the lender off and takes the home.
This program allows lenders to loan money to people that would not normally qualify for a home
loan. There are housing price limits as well as strict guidelines with this type of loan.
About the author:
Matthew Allen is a mortgage consultant with Action Brokerage Services, Inc. in Medford, Oregon. He is
also the author of "How To Buy A Home With Zero Down, Even With Damaged Or No Credit".
You can visit his website at
http://www.realmortgageadvice.com
