Buying a home with little to no money down

Whether you are a first time homebuyer or you are a seasoned homeowner looking to upgrade and buy a new home there are mortgage programs available for you. There are 100%, no money down mortgage programs that are available for many people. There are even some 100% financing (0 money down) home loan programs available for people with credit scores as low as 500. While the financing terms will not be the most favorable it is still nice to know that you may have options for your situation.

80/20 Combo Loan
Probably the most common way to buy a home for people with little to no money available for a down payment is the 80/20 combo loan. This is 100% home financing utilizing an 80% first mortgage loan and a 20% second mortgage loan. For example let's say you have put in a bid on a home for $150,000 and it was accepted. This means $150,000 is your purchase price and if you were doing an 80/20 combo loan you would obtain an 80% first mortgage in the amount of $120,000 (150,000 x 80%) and you would obtain a 20% second mortgage in the amount of $30,000 (150,000 x 20%). The main benefits of the 80/20 combo loan are that you are able to buy a home with little to no money down and you are able to avoid PMI, Private Mortgage Insurance. PMI is a very costly insurance, especially when you have a very small down payment, that you the borrower pays to help protect the bank in case you default on the mortgage. Not only is the insurance costly but PMI requires you to pay insurance for the bank. I don't know about you but I would not like being required to pay for someone else's insurance. Therefore, this is one of the hottest and most common financing methods available today to buy a home with zero money down.

100% Sub-prime Loan
This type of financing is generally for people with a blemish or a few blemishes on their credit. It can also be used for people who may have a hard time documenting income or who seek "creative financing" methods. Usually, the 100% sub-prime loan will be 1 loan instead of 2 loans such as the 80/20 combo loan. There is generally no PMI on this type of loan either, however your interest rate is generally going to be at least 1-2 percent higher than your rate would be with an 80/20 combo loan. Sometimes with the right situation you can even make this type of financing work better for you than other methods. Sup-prime loans generally will cost you a little bit more than conforming loans but they are generally worth it, if your situation calls for one. Sometimes these 100% sub-prime loans will even offer 103-107% financing as well. What this means is that your home loan financing would be a true no money down, no money out of pocket financing. If you ever decide to consider this option look at the both the "big picture" and the "small picture". Don't accept a 9% rate so that you don't have to come out with any money out of your pocket if you can qualify for an 8% rate and all you have to do is come up with the closing cost money. A good mortgage LO should be able to help you decide which loan is right for you.


Seller Carryback
A seller carryback, also known as a seller piggyback or a seller second mortgage, is a loan where the seller actually holds title to the second mortgage of the home. Sometimes you may have certain circumstances that are preventing you from qualifying for the financing that you need and your mortgage lender will not allow you to finance over a certain percentage of the purchase price with them. However, they may consider allowing you to obtain a second mortgage from the seller (if the seller is willing and able) so that you can still buy the home under the financing terms that you need. For example lets say you were looking to buy a $100,000 home and the lender would only allow you to borrow 90% ($90,000) of the purchase price with them for the mortgage financing. This means that you would need to come up with 10% ($10,000) in order to buy this house. However, if the lender and the seller will permit you to use a seller carryback mortgage you may still be able to buy the home with little to no money down. A seller carryback is going to be similar to any other mortgage. It will be drawn up as a mortgage with certain provisions to it. You may be required to make monthly payments based on a certain interest rate for a certain amount of time or you may be required to pay off the seller carryback mortgage within a certain time frame and not be required to make any monthly payments. The seller of the home would obviously need at least that much equity available in the home to make that type of financing work as well. The seller carryback will usually help you to avoid PMI, or at least limit it, buy a home with little to no money down and provide you with another financing alternative when you are buying a home.

There are many other programs available out there as well to help you buy a home with littel to no money down but I wanted to touch on some of the most common types of 100% finanicng for informational purposes. Please feel free to email me or to post your comments if you have any questions about buying a home with little to no money down. There are many programs available out there that many mortgage companies and it's Loan Officers do not take their time or put in the effort to find. It is imperative that you find a qualified and educated mortgage professional to deal with.