Purchasing Real Estate with zero down payment?
Buying a property with zero cash-down is considered a risk by many homebuyers. The higher mortgage liability combined with the additional obligations such as the Private Mortgage Insurance (PMI) forces many people to sit quietly until they procure sufficient fund as down payment for their home. However, the current real estate scenario presents a different picture. With many public and private agencies helping the homebuyers by providing 100% mortgage, many homebuyers now are being encouraged to look for zero down payment option.
The most popular zero down payment plan is the one offered by the federal government under the name Veteran Affairs (VA) Plan. About 70 million people, i.e., one quarter of the national population, are eligible for the VA benefits from the state. The most popular VA benefits is the VA home loan program which enables the veterans to purchase a home with zero percent down payment and a competitive mortgage interest rates than the private companies.
The VA loans have many benefits over the conventional loans offered by banks and mortgage companies, the most important being the competitive interest rates. Another aspect of the VA loans is that the buyer will get to know the actual market rate of the property irrespective of the rate suggested by the seller. The market value is calculated as per the standard property evaluation system, and the evaluation of the property is carried out when the buyer applies for the VA loans. In case the buyer wants to buy the property for a higher rate, he will have to shell out the remaining money on his own, and at his own risk.
The Federal Housing Association (FHA) offers a low percent (up to 3%) down payment option to the eligible buyers. It was earlier considered as a housing option for the poor and underprivileged, but now it attracts many homebuyers because of its lenient features such as the low down payment and the lower debt to income ratio. Another attractive plan from the government for the rural development is the Rural Housing Loans, applicable for farmers and rural community. These are zero-down payments loans with lower interest rates. Apart from these government-aided programs, there are many charity programs operating in different states. These provide you funds for down payment as non-loan grant. Examples of such programs are the Partners in Charity and Nehemiah Program.
The conventional lenders such as the banks and the mortgage companies too are involved in 100% financing. To apply for this special category program, the buyers have to have an excellent credit history. Above that, he has to purchase the Private Mortgage Insurance (PMI). Another method of getting 100% finance from such sources is to opt for an 80/20 plan. This is called the 80/20 Piggyback loans, and by this plan, the buyer will get 80% mortgage on the property, and 20% further on the first mortgage, and thus a total loan of 100%. For the 80/20 Piggyback plan, the buyer need not apply for the PMI.
There are good mortgage programs available from well-known mortgage companies that offer little or zero down payment option for houses priced in the range of $100,000 to $1 million in many prestigious locations. With many players in the mortgage market, getting a 100% loan is not a difficult task as it had been before.
Though the zero down option seems to be very attractive at the first sight, there are some hidden holes in it. The mortgage rates for such plans are often much higher than the regular plans. Moreover, if you opt for the PMI, it will cost you an additional few hundred dollars per year to your mortgage payments. Therefore, a good credit history is a must to opt for such loans.
If you possess a credit score of a minimum 580 and you are able to convince the bank that you can produce more income, you are likely to get the 100% loan. The better your credit history, the more are your chances. If you are not in a position to show your additional income, then too the lenders will help you get a 100% loan with the help of a stated income for a credit score as low as 600. However, the rates for stated income loans are much higher than the regular loans, and so it is better not to get into it.
If you are confident of paying off your mortgage without upsetting your day-to-day financial matters, go for the 100% loan.
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