You Can Buy Zero Down

100%-97%-95% Financing
Buying Zero Down and Almost Zero Down
by James Robert Deal
Mortgage Broker

In the past zero-down financing was available for buyers who have a wide range of credit scores and incomes. Today it has almost disappeared. The markets are currently reacting to mistakes made by sub-prime lenders.

At times, there were even zero-down stated income loans available. But not now. In the rare cases where 100% financing is available, you have to prove your income.

In the past we relied on the conforming Fannie Mae FNMA 100% Flex. Technically it is still available, but mortgage insurance is required, and now the mortgage insurance companies will only insure up to 95% financing. This means that 5% is the maximum conventional loan available. However, bear in mind that the seller can pay up to 3% of the buyer's closing costs. The buyer can then come in with 5% down and have no closing costs.

VA loans can still be done as 100% loans, and the seller can pay up to 6% of the buyer's closing costs. However, there is a big upfront 2% VA funding fee to pay.

FHA loans can be done as 97% loans. A buyer's relatives may pay the 3% down payment as a gift, and those relatives can be related by blood, marriage, or by law. It is still allowed for the seller to pay 3% of the purchase price to Nehemiah or some other down payment assistance program, which 3% (minus Nehemiah's reasonable fee of around $600) will be paid to the buyer as a down payment gift. This is an obvious fiction: A seller not related to a buyer by blood, marriage, or law cannot make a gift to a buyer. However, a non-profit corporation can make a gift to a buyer. And a seller can make a gift to a non-profit corporation such as Nehemiah. On a 97% loan the seller may pay up to 3% of the buyer's closing costs. On the other hand, FHA charges a 1.5% FHA mortgage insurance fee up front.

When a seller pays 3% of the buyer's closing costs, the sale price is artificially increased 3%. This allows the buyer to finance his closing costs over the term of the loan instead of paying for them out of cash on hand. The net result is that a buyer can get into the property for very little money out of pocket. For such loans the lender will want to see reserves sufficient to pay the first two to six months of payments.

So if you have no down payment, the question is whether your are a veteran or have relatives who can pay your 3% or 5% down payment or whether your seller will pay 3% through Nehemiah.

100% financing is not available for rental property.

What if you have only 3% saved up? Should you wait until you save up more money?

If you can qualify for 100% or 97% or 95% financing right now, even if they payments are higher than you would like, should you wait three years, for example, to save up a down payment? Will the price of the home you want to buy increase more that the amount of the down payment you can save in three years?

Should you wait? In Washington, no. The real estate market is currently in a holding pattern. For starter homes prices have not dropped much or at all. The rate of slowed and flattened out in 2007 and continues flat. However, it could start upward at any time. Although there is a real estate depression in many parts of the country, real estate values are local, not national. There is a shortage of land on which to build homes. There is strong job growth and good paying jobs. It is inevitable that home values will climb. I do not agree with our grow-grow-grow mentality. I will write about how foolish it is. But I will not have any success in changing it.

Will the price go up faster than you can save up money for your down payment? In Washington, yes.

If you buy the home you want right now, on a low or no down payment program, you will own a home that will be gaining in value every year. Hold your new home for three years, and it may increase enough in value that you will have 20 percent equity in it and will then be able to refinance it and get the best terms possible on a loan for 80 percent of the value.

If you buy zero down or low down, your payment will be higher than if you paid a down payment. But buying zero down or low down can actually create the down payment you do not now have or barely have. Your payment will be higher, but you will not have to save money every month for your down payment. Instead of putting the extra money into your savings account, you put it right into your house payment.

Call me at 425-774-6611 or 888-999-2022 for further information. Or e-mail me. The fax number is 425-776-8081. Click here to sign up for our e-mail messages, our printed mailings, or to request a call back.

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