Mortgages with No Money Down
These days, it’s tough to find “mortgages with no money down,” as banks and mortgage lenders have toughened up quite a bit over the past couple years.
The reason they require a larger down payment these days is because home prices aren’t appreciating like they once were; in fact, they’re dropping steadily, shifting more risk to the lenders. If homeowners don’t have any skin in the game, otherwise known as home equity, there’s a better chance they’ll walk away from their mortgage if they fall behind on payments, leading to costly foreclosures.
Conversely, if a homeowner is required to put down say 10 percent of the purchase price, the lender has a safety buffer, and the homeowner is more likely to continue making payments, as they won’t want to lose that initial investment.
Back in 2006 and 2007, you could easily get 100 percent financing, such as an 80/20 combo loan, which is a first mortgage at 80 percent and a second mortgage for the remaining 20 percent, from nearly any bank or lender. These high-risk financing deals were rampant, and most homeowners took the bait and chose not to put any money down, assuming their home would appreciate endlessly. That explains why millions of American homeowners are now underwater on their mortgages and/or facing foreclosure.
And that’s pretty much why the days of no money down mortgages came to an end, with lenders quickly upping credit score and documentation requirements, while slashing maximum loan-to-values.
So what options do potential homeowners have nowadays when it comes to a mortgage with no money down? Amazingly, it’s still pretty easy to get a mortgage with close to or no money down.
FHA loans, which have coincidentally skyrocketed in popularity since the mortgage crisis got underway, are available with just a 3.5 percent down payment. And there was a time not long ago that you could actually get a FHA loan with no money down at all thanks to seller paid downpayment assistance, which has since been outlawed. However, individual states are still trying to use the first-time homebuyer tax credit as a down payment to circumvent the issue.
Mortgage financier Freddie Mac offers its Home Possible® 97 Mortgages, which require as little as three percent down payment.
There are also zero down mortgage programs offered by the USDA, VA, and other government agencies, and some that even exceed 100 percent financing despite the ongoing housing bust! Of course, not everyone qualifies for these types of loans.
Credit unions are offering mortgages with just five percent down, but only for conforming loan amounts. Most of the big, private banks, on the other hand, want as a minimum down payment of 10 percent for a home loan, if not more, depending on your credentials.
Keep in mind that jumbo loan amounts require higher down payments, so don’t expect to get 100 financing or even close to it.
As a rule of the thumb, the weaker the borrower and the more complicated the financing, the lower the maximum loan-to-value. For example, if you’ve got bad credit or an investment property you want financed, you won’t be able to get a no money down mortgage.
