11/27/2018
Is a “zero down” mortgage the answer?
If you have been searching for homes on the internet, we bet you are thinking about a zero-down mortgage right now. The buzz about “zero-down” sounds amazing, especially if you want to buy a house now when mortgage rates are still low & without having enough time to save or paying down debt.
Most home buyers have difficulty finding enough cash to put down to qualify for a home loan. In a model scenario, you should be able to offer at least 5 - 20% of purchase price as a down payment towards a home as all conventional mortgages require. In 2018, the median price range of sold homes in Nassau County was $534k (NAR website, 2018 brokers report) & 20% is roughly $106K. We usually see home-buyers struggling to scrounge-up more than $20 - 40K. Buying your home is one of the most important things you can do in your life, so good for you that you are here learning more about different types of loans & what is real or not. There may be some alternatives for loan packages with lower down payments or none at all, which would be considered a zero-down mortgage.
A zero-down mortgage is a loan that covers the whole purchase price & although rare, a loan may be able to roll other costs above the purchase price into the loan, like some closing costs. Since the sub-prime mortgage financial crisis in 2008, there are two possibilities for zero-down mortgages: A USDA loan from the U.S. Department of Agriculture, or a VA Home Loan from the U.S. Department of Veteran’s Affairs. There may be other types of loans available, new packages seem to pop-up all of the time and we encourage you to shop around with trusted mortgage brokers to see what is available for your specific needs.
USDA loans are designed to offer low interest rate loans to very low to moderate income homebuyers in rural areas loans for single family homes, eligibility requires good credit and may depend on location. Some of these loans you may have to pay private mortgage insurance (PMI) which is a monthly payment equal to approximately 0.05-1.0%. Beware of possible restrictions with USDA loans for example: square footage limits, pools and/or potential revenue activities.
VA loans require the borrower to have good credit and also require a certificate of eligibility from the VA, the applicant is also required to prove sufficient income. The main features are that the VA loan does not require is private mortgage insurance (PMI) however may include a 1% origination fee, and other costs like appraisal fees. Some States may have limitations regarding the type of home. Albeit unlikely in our current market, but The VA will not provide a loan if the property appraises for less that the purchase price.
If you are eligible for a different type of loan, that’s fantastic! Please consider that getting an unconventional loan may cost less upfront, but it may cost more over time. If you do pay for PMI as is the case with a USDA loan or most other loans with less than 20% down, you should do a simple analysis of the PMI payment cost over time, raising interest rates, depreciation and home value trends in your area vs trying to save for an upfront 20% down payment.
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40 years experience in commercial and residential real estate in Long Island. available for all your rea estate needs.
