1/18/2013 8:30 PM ET|
Buy a home with no money down?
It's possible to get a mortgage to buy your first home even if you haven't saved up a big down payment. Here's where to look.
With home prices and mortgage rates as low as they are, a lot of people are considering becoming first-time homebuyers. Unfortunately, many of them are discouraged by a perceived need to come up with a hefty down payment.
While the free-money days of the housing boom -- when virtually anyone could get a mortgage with little or no money down -- are long gone, there are still ways for qualified borrowers to get a mortgage with a small down payment. And qualifying may not be as difficult as you think. In fact, if you know where to look, it's still quite possible to get a mortgage with no money down.
Here's a look at the major options. Note that these options are not affected by the new mortgage rules issued by the Consumer Financial Protection Bureau on Jan. 10. Those rules set certain standards for borrowers' financial qualifications for getting a mortgage, but the size of the down payment was not among them.
The Federal Housing Administration is the first place most new homebuyers should look when contemplating a low-down-payment mortgage. The FHA requires a down payment of as little as 3.5% -- with attractive mortgage rates and credit requirements that are fairly generous as well.
The downside of an FHA mortgage is that the fees -- actually FHA mortgage insurance -- can add up. Currently, borrowers pay a one-time fee of 1.75% of the amount borrowed as an upfront mortgage insurance premium at the time they take out the loan. In addition, there's an annual insurance premium of 1.20% to 1.25% on 30-year mortgages.
So in the first year, you can end up paying nearly as much in mortgage insurance as you paid for a down payment. However, you can roll the cost of insurance into the loan, so you're paying it on a monthly basis over time, rather than having to come up with it all at once, as you would with a down payment.
Interest rates on FHA mortgages also tend to run a bit lower than those on conventional 30-year home loans, which helps balance out some of the cost of the insurance premiums. If you had a conventional mortgage with a down payment of 5% to 10%, you'd still have to pay private mortgage insurance annual premiums of 0.78% to 0.90% of your loan amount, so the difference isn't as great as it might first appear.
For veterans and others who qualify, a mortgage backed by the Department of Veterans Affairs is the best deal around. Not only is it one of the few ways you can still get a mortgage with no money down, there's also no requirement for mortgage insurance, since that cost is picked up by the U.S. government. The interest rates also tend to run lower than on conventional mortgages, because the government is taking on part of the risk.
Generally, VA loans are available to all active-duty and honorably discharged members of the armed forces, including the Coast Guard and members of the National Guard or Reserve who served at least six years. Surviving spouses of service members killed in the line of duty are also eligible.
You do have to pay a funding fee of 2.15% of the loan amount if you take out a VA mortgage with no money down. However, that fee can be rolled into the loan amount, so you don't have to pay it upfront. You can avoid the funding fee entirely by making a down payment of at least 3.5%.
VA mortgages officially have no minimum credit score requirements, but in practice, the private lenders who handle VA loans will require a FICO score of 620 or higher.
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I personally know a young couple who used the USDA home loan program to buy their first house. Not only did they buy their 1st home-they built a brand new one-using this program. The government(tax payers) will be paying part of their mortgage for the lifetime of their loan-33 years.
The only $ that had to come out of their pocket was the Earnest Money to write the contract to the Seller for the land and that was only around $500.00. The USDA required they go to a one day class on "how to be responsible home owners & understanding a mortgage" & after that they received grants to cover everything else required in buying a home. The closing cost were paid, no down payment, no private mortgage insurance & the 1st years Taxes/insurance were also paid. When I say wasn't or no it was because they received so many grants to cover this & that I lost track.
When you say Rural now days-it means simply not in the City so more areas are qualifying than before. Not just farm land that your most likely thinking about.
The USDA has a website where you can do a mock application to see if you qualify. Just BING USDA Home loans or Agriculture department home loans and I am sure you will find their website. It also has a list of the areas that qualify for the loans. Who knows you may already live in that area and don't even know it-like my friends were. They were paying $800.00 in rent and now $675.00 buying.
It may be up to the agent in each area I am not sure how the program works once you apply but their agent helped show them the areas in credit report they had to clean up before they could be approved. It took them 6 months total but in that time they had cleaned up their credit was ready once the agent received the funding. It can take as long as a year they told me.
Anyway I would recommend anyone wanting to buy a house at this time to check this loan out with all the others-as it could not hurt to look at it. It may be the only one you can qualify for like these folks-only because they had some bad credit to start & then it was very little credit at that. However, that being said please never never buy something you can not afford in the long run-no matter who is offering it! Because if it sounds to good too be true-it probably is.
1) Buy the house at well below market value (e.g. 20%) . You can find these houses and people who will give you these kinds of discounts all over the place.
2) Secure the deposit with a short term loan from a friend, or a Bridging Loan.
3) Buy your house
4) 6 months later - remortgage the house to the full market value and get you deposit back and payback your loan. your home is then bought without a deposit.
5) Enjoy your new home.
This sounds impossible but is quite possible if you give yourself a little education in the process.
You need to make sure the figures stack up.
I hope you have development and honor and prosperity.
Win and win with holy state and capability.
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