It was not that many years ago that home buyers with just about any credit score could purchase a home with little to no money out of pocket. When those relaxed lending guidelines were coupled with depreciating real estate values, the result was hundreds of thousands of homeowners upside down in their mortgages and unable to refinance. To complicate the situation even more, a good percentage of these borrowers took out adjustable rate mortgages, many with 2 to 3 year introductory rates. And unlike many Freddie Mac and Fannie Mae agency products, there was likely no chance of these sub-prime mortgage rates remaining flat or even adjusting to a lower rate. Lending guidelines also tightened significantly for most products making borrowers who previously would have qualified for refinancing stuck in their current program.
Today there are a few low and zero down mortgage products in the marketplace including FHA loans, VA loans, and USDA rural housing mortgages. FHA loans, run by the Federal Housing Administration, are insured against default by the FHA. Approved lenders are guaranteed that they won’t have to write off a mortgage if the borrower defaults on his or her loan. FHA does keep track of the default rates of the various FHA approved lenders and companies can lose their right to participate if they show a poor track record. Down payment requirements change periodically and currently many FHA products require a 3.5down payment (subject to change). FHA loans are popular many reasons. First, unlike USDA loans, there are no income caps. Meaning you can make $200,000 and still obtain an FHA mortgage as long as all other qualifying criteria are met. FHA loans are also thought of as having slightly less strict underwriting guidelines. One downside to FHA loans is that loan limits may be lower than what would be available under Fannie Mae’s and Freddie Mac’s conforming loan limits. FHA loans also have an upfront private mortgage insurance (PMI) premium and recurring PMI payments are added to monthly payments for a set number of years even if one’s loan-to-value ratio drops below the 20% threshold where many lenders eliminate PMI.
VA loans are a zero down mortgage solution which are designed to help qualifying active duty servicemen and women, veterans, and surviving spouses purchase property with little to no money out of pocket. These are made available by approved lenders and are guaranteed by the United States Department of Veterans Affairs. Other benefits of VA loans may include no private mortgage insurance, less restrictive debt-to-income ratios, and more relaxed credit guidelines than would be found with agency conforming loan products.
USDA Rural Housing Loans
USDA Mortgages, administered by the United States Department of Agriculture Rural Development, are designed for lower income individuals who are looking to purchase homes in rural area of the United States. Eligibility is affected by both a borrower’s income and the property itself. According the USDA’s web site, applicants can only earn up to 115% of the median income for their area. Loan programs are for 30 years and there is no down payment required. Borrowers can search for a property by its address on the USDA site to see if the home is in a USDA eligible area.
While the aforementioned mortgage programs comprise the majority of low and no money down mortgage products being originated in today’s marketplace, there may be some lending institutions who are offering their own low down payment financing options. Most consumers should consider a fixed rate product when taking out a low money down mortgage as real estate prices are still heading lower in some areas of the country making the risk of being upside down in an adjustable rate mortgage a scary prospect. Be sure to seek the advice of a licensed mortgage professional before moving forward with any home loan decision.
About the Author
Nat Criss is a real estate and mortgage copywriter helping companies promote their brands and products online.