100% Loans? - Really?

The mortgage circus of the previous few years had quite an act in the center circle, including loans on investment properties that required no money down, no proof of income and only a bottom of the barrel credit score. We're all well aware of the mess this has resulted in. By the way, I'm convinced the most important screw up in all of this was the lack of a requirement that home buyers prove their income.

So, are these types of loans still available? Of course not, BUT, there are still opportunities to obtain mortgages with very little or no money down. Certainly, there's room for a debate about whether this is a good thing or not, but that's not the point of this article. We simply want to let you know what options are available.

Generally speaking, you should expect to put down a minimum of 5%, at least if you plan on obtaining a loan underwritten by Fannie Mae or Freddie Mac guidelines. However, the following is a sample of some very good mortgage options requiring less than 5% down:

• FHA loans - in most areas of the country, as long as your loan amount is less than $271,050, you can access HUD's FHA loan, which requires only 3% down; and, HUD is fairly liberal in it's allowance for the down payment to come via a gift from a family member, effectively resulting in 100% financing.
• VA loans - this is a loan that is insured by the U.S. Dept of Veterans Affairs and is of course designed to assist veterans purchase a home. For most areas of the country, as long as the loan amount is $417,000 or lower, the veteran will not be required to fund a down payment on the purchase of a home. One of the best features of these loans is the fact that the veteran does not have to pay mortgage insurance, or PMI, which can add a significant amount to a mortgage payment. The VA does charge a funding fee ranging from 0.0% to 3.3% depending upon the specific situation, but this fee can be financed in to the loan.
• State sponsored loans - in New Mexico, we have the NM Mortgage Finance Authority (I believe most states have something similar), which is a quasi government entity that issues bonds and uses those proceeds to fund mortgages. There are various programs administered by the authority, including more than one way to purchase a home with no money down. With a few exceptions, these programs have maximum income limits, depending on family size and location within the state, but the limits are fairly liberal and vary depending on the size of the family. Additionally, the majority of the programs require the borrower to be a 1st time home buyer, but a 1st time home buyer is defined as not having owned a home in the last three years.
• USDA loans - known as Rural Development loans, these loans are also insured by the Federal Government and allow for home buyers to purchase a home with no money down. There are income and geographic restrictions that must be adhered to, but if you do qualify, this just may be the best loan for someone who is not a veteran.

So, as you can see, there are some great options for purchasing a home with no money down. The common theme with all of these options is that you must be able to document appropriate income for the home you are trying to buy. What a novel concept.

If you have any questions about these programs, please don't hesitate to give us a call. We've only been able to give you basic highlights about each of these programs and would be happy to give you more details as you desire.