Not many years ago, buyers were able to purchase homes without making a down payment. There were several options for these zero down loans, such as Fannie Mae's My Community or Du Flex loans. An around the way (but quite popular) option for doing this with FHA was getting the seller to contribute the down payment money to a non profit organization like Nehemiah or AmeriDreams, which then granted the money back to the buyer for a fee.
Despite the popularity of such loans, lenders are now realizing that these kinds of loans did more harm than good. In short, there is no such thing as a $0 down mortgage anymore. Fannie Mae has raised guidelines for their loan products and is not allowing zero money down now.
However, borrowers who were considering these loans do have other options. So, don't assume that you can't get a low down payment loan right now - it just won't be no money down. Be sure to talk to your lender about your options. It's a little harder to meet the new Fannie Mae guidelines, but buyers still use these loans everyday. So, don't think it's impossible.
Now that buyers can no longer get a zero down mortgage with FHA, some are questioning whether it's still worth using the FHA loans. Although a buyer will have to put money down now, he or she will generally have a lower payment with an FHA loan compared to a traditional loan. The reason that the payment is less with FHA is because the mortgage insurance premium for these loans is less. And, that insurance can make a big difference. Another advantage of using FHA loans is that the borrower can have a lower down payment. FHA only requires 3 percent down, where most conventional loans want 5 percent or more. It's easy to see why FHA is still such a popular loan for borrowers - even without the zero down that it used to offer.
State housing is about the closest thing there is right now to the zero down loans. State housing does not always require the full 3 percent down. These kinds of loans can be a pain in the neck to jump through all the hoops to get them. But, they provide a lot of buyers with a way to buy a home when they otherwise would not be able to. And these loans really depend on income. For a borrower with low income and a low sales price for the home, it's possible for this person to obtain very close to a 0% loan. But, this borrower would need good credit.
Lee Keadle is a top selling Charleston SC Realtor working in the Johns Island real estate and North Charleston real estate markets.
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