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Do Zero Down Mortgages Still Exist?


July 7, 2010
Zero Down Mortgages - Yes!

This has been a common question that is asked with a lot of the changes that have occurred within the mortgage industry within the past 3 years. In our microwave society of get it now and pay for it later, this was also available in the mortgage industry with a wide array of no down payment options.

Due to declining property values, investor’s have now changed their requirements, to protect their collateral, or your home. The lenders want to know that they have some equity in the event of the property being foreclosed on within the first couple of years. This helps to minimize their risk exposure by lowering the loan amount compared to the purchase price. For instance, if you bought a house for $200,000, you could be required to finance $190,000. This means the difference is your down payment that you would be required to provide. Since you have invested $10,000 of your assets, you would be less likely to let the house go back to the bank if finances became tight.

From a borrower’s standpoint, it is always good to put some money down to invest in your future. More equity means more money to put down on another home when you move up to a bigger house. Also, if you can put down 20%, you will not have the extra added cost of mortgage insurance. It also allows you to pay off your house quicker. Equity is simply the difference in what your home is worth versus what you owe. For instance, if your home was worth $200,000 and you owed $150,000, you would have $50,000 in equity.

The current options for down payments are 3.5% for a FHA borrower. This is the type of mortgage that most clients go with if they don’t have much money available. FHA also allows for the entire down payment to be gifted by a relative.

Conventional mortgages require a 5% down payment. If you can put down 20%, then you will not have the extra monthly mortgage insurance. Relatives can gift the entire 20% down. Conventional mortgage require higher credit scores.

The good news is that the Veteran’s Administration still allows a qualified veteran to secure a mortgage with no down payment! Also, VA doesn’t require monthly mortgage insurance. Furthermore, the seller can pay for all of the closing costs!

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