Learn,About,the,Zero,Money,Dow finance, share, loan Learn About the Zero Money Down Mortgage Loans That Can Land

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The allure of being able to buy a home with “Zero MoneyDown” can be pretty strong if you’re short on down payment cash. Real Estateinvestors who buy homes and flip them for a profit are also attracted to thesetypes of loans because they reduce the amount of capital that is tied up intheir property portfolio.Is this a case of “Sounds too good to be true?”These types of loans are written every day. Let’s take alook and see if one of these zero money down mortgage programs is a fit foryour home buying needs. The 100% Loan with PMIMortgage down payments are necessary buffers used by lendersto protect themselves from potential loss due to the costs of foreclosing aproperty in case of loan default.  A 20% down payment is considered sufficientprotection, and is therefore the industry standard.  Any amount less than thatwill require some other method to reduce the lender’s risk.One such method is private mortgage insurance, or PMI, whichis paid by the borrower for insuring the lender against loss.  You will have topay it until you have built up 20% equity in your home.When obtaining this type of no money down loan, you aresimply taking out a mortgage loan for 100% of the home’s cost and paying PMI. The 2/28 or 3/27 LoanIf you decide to take a 100% loan, you may be restricted to2/28, 3/27 or similar loans, especially if you have low FICO scores or havebeen determined to be a sub-prime borrower for any reason. Depending uponwhether it’s a 2/28 or 3/27 loan, the interest rate is fixed for the first twoor three years and then is variable for the remaining life of the loan.  Loansin which the interest rate is fixed for a number or years and then becomesvariable rate are also known as hybrid loans.If your FICO scores or whatever conditions caused you to beclassified as sub-prime can be remedied during the fixed interest rate period,then you can apply for a more conventional mortgage before the variable rateperiod starts.The 80/20 MortgageThis is one of the most common programs and it works likethis: The lender writes you a mortgage for 80% of the selling price of the homeand then either the same or an affiliated lender writes you a second mortgagefor the remaining 20% of the home’s value.This is a good solution for avoiding PMI (Personal MortgageInsurance) payments for borrowers who do not have a 20% down payment available.One of the down sides of this solution is that you usuallyhave to pay two sets of closing costs, but those costs will still be far belowwhat a typical 20% down payment runs.In most cases your combined monthly payments won’t besignificantly higher than they would be with a conventional loan although youwill end up paying a slightly higher interest rate on the second mortgage. However, in many instances the specifics of a 80/20 loan deal make it cheaperthan taking a single mortgage and paying PMI.The 100% LoanThis is the least complicated loans because it only requiresone lender to write one loan for 100% of the home’s selling price.The interest rates can be significantly higher than with the80/20 loan plus you will have to pay PMI until you have built up 20% equity inyour home.VA LoanIf you are an honorably discharged veteran of the UnitedStates Armed Forces then a VA (Veteran’s Administration) loan offers 100%financing without incurring the penalty of having to pay PMI. Lenders who participate in VA loan programs have lessstringent qualification requirements because the U.S. Government is guaranteeingthe borrower’s performance. This means that borrowers who might not otherwisequalify for a mortgage can get qualified with a VA loan.Other No Money Down AlternativesThere are other government loan programs which can get youinto a home with no down payment if you qualify for the terms and conditions. Forexample, if you are buying a home in a rural area then you may qualify for aUSDA Rural Housing loan program. The American Dream Down Payment Initiative law wasrecently signed by President Bush and it offers another avenue into homeownership. There are some qualification requirements including that you be afirst-time home buyer who is purchasing single-family housing that you intendto live in. The term “single-family” includes conventional one-family housing,a condominium or co-op, as well as a pre-manufactured or mobile home. Even though the law says that you have to be a “first timehome buyer”, the actual definition states that a first-time home buyer can be aperson or married couple who have not owned their own home during the threeyears prior to applying for a loan through the program.The Federal Housing Administration (FHA) offers low incomefirst time home buyers the chance for home ownership with just a 3% downpayment. They have the resources available to steer the borrower towards otherGovernment “down payment assistance programs” which can end up resulting in azero money down loan in the end.HUD is in the process of getting a true “Zero Down” programlaunched and it is expected to become available during 2005 if Congress passesthe legal changes required to make it law. Not only does HUD want to offer ZeroDown loans, but they want to allow the borrower to roll some of the closingcosts into the loan up to a maximum loan value of 103% of the selling price.Many State and local/county governments also offer first-timehome buyers and other targeted groups the opportunity to participate inprograms which offer no money down loans. Your best bet for finding any zero down programs is to dosome research yourself and enlist the aid of a mortgage broker who specializes inzero money down mortgage programs.