Is it really possible to buy a house for nothing down?
You'll need a good income and good credit.
Your first home won't be your ultimate dream home. But it will be a start toward eventually buying your perfect home.
What does "nothing down" mean? The simple definition is "zero cash from your pocket to buy your home." However, that doesn't mean the home seller won't receive cash from the sale. In fact, the seller often receives 100 percent cash in a nothing-down home purchase.
Lenders usually charge a slightly above-market interest rate for zero-down-payment mortgages. In addition, they require PMI (private mortgage insurance), which requires a monthly premium to protect the lender's top 20 percent or the riskiest part of the mortgage. PMI premiums are not inexpensive, so be prepared.
If you are a bit short of cash, the nation's largest secondary mortgage market home loan lenders, Fannie Mae and Freddie Mac, will even loan up to 103 percent of your home's purchase price to help pay the closing costs.
For more information on "NO MONEY DOWN" home loans click here.
Just to be sure you can qualify for a 100 percent home loan, it's smart to shop for a mortgage before you shop for a house or condo. Then you can receive a written pre-approval from an actual mortgage lender (not just pre-qualification, which means nothing) so you will know your maximum mortgage amount.
There are two major reasons for buying a house or condo for little or no cash:
- You don't have the down payment cash.
Just because you are "cash challenged" is no reason not to buy a house
or condo. Even if you have lots of cash, why tie it up in your residence?
- The second major reason for buying a home with little or no cash is to maximize your leverage benefits.
Presuming you want to buy your next house or condo for little or no cash, there are many ways to do so. The most obvious is to obtain a 100 percent or greater new mortgage. But this method requires good income and good credit, and it can be expensive.
Instead, suppose you don't need 100 percent financing, but you don't want to tie up a bundle of down payment cash.
The first step is to get pre-approved with a mortgage lender for the maximum mortgage you can obtain. Be sure this approval is in writing from the actual lender, not a worthless "pre-qualification letter" from a mortgage broker.
The second step is to use that written lender's mortgage pre-approval to buy the home you want. If you keep the mortgage balance below 80 percent of the home purchase price, you have many alternatives:
One is the 80-10-10 plan in which you obtain an 80 percent first mortgage, a 10 percent second mortgage, and pay a 10 percent cash down payment.
Another is 80-15-5 in which you pay only 5 percent cash down payment and either the seller carries back a 15 percent second mortgage or the lender arranges a 15 percent second mortgage home equity loan. Either way, you receive maximum leverage benefits, buy your home for practically nothing down, and avoid costly PMI premiums.
With the help of your buyer's agent, make your purchase offer before another buyer steals your home. However, be sure your purchase offer contains two key contingency clauses for 1.) a satisfactory appraisal of the home (as required by your mortgage approval letter), and 2.) a professional home inspection.
If you have good income and good credit, mortgage lenders are thrilled to loan you 100 percent of your home's purchase price.