It is important to realise that while it may be the only way a borrower can purchase a home, a zero down mortgage does carry a higher interest rate. Ultimately the borrowers goal should be to refinance when there is enough equity to achieve an 80% Loan to Value (LTV).
One option for high credit score borrowers who have minimal disposable cash is to use a 103% loan. This loan allows you to to borrow up to 3% in addition to the purchase price to help with closing costs. Ask your preferred mortgage professional if you qualify for a 103 LTV program.
Some conforming zero down programs do require you to contribute at least $500 to the purchase. Your earnest money counts as money towards purchase. You may also be required to pay your hazard insurance out of closing so that will be another out of pocket cost. Ask your mortgage broker for details on the programs they offer.
The most common way mortgage brokers structure "Zero Down" financing is to break the loan amount into a first and a second mortgage, with the first mortgage consisting of 80% of the loan amount needed and the second mortgage being 20%.
Zero down mortgages are a great tool to use, even if you have saved up for a downpayment. By choosing the zero down mortgage, your downpayment money can now be used for closing costs associated with the loan, moving expenses, new furniture, or any other expenses that you may have when you move into your new home.
If you cannot afford a down payment for your home, there are some down payment assistance programs and grants that may be able to help you purchase your new home. Often these programs are limited to first time home buyers or those with low income. However, there are often some restrictions to how one may qualify. These type of down payment assistance program differ from one locale to another. Banks may also choose to allow or disapprove of such assistance programs.
Obtaining a true zero down mortgage is when you will not have to come to closing with any funds of your own. In order to achieve this you will need to either have a no closing cost mortgage which can get expensive, or you can have the sellers pay closing costs. Traditional conforming lenders will generally let the sellers pay up to 3% of your closing costs, while most Alt A and subprime lenders will allow up to 6% in closing costs paid by the seller.
Often times zero down payment programs are available to first time homebuyers. If you need a stated income program you may be able to obtain a stated zero down program with an Alt A or subprime lender.
In 2005, 43% of first time home buyers used zero down programs. Call the local mortgage professionals to find out how one may qualify for one of these programs.