Are there still No Down Payment Mortgages Available?

Are there still No Down Payment Mortgages Available? 

 Let us begin by stating what most real estate and mortgage professionals might view as obvious, but what, to the average person, might not be as clearly defined. It is generally understood that a 100% financing mortgage means the same as “zero down payment” when an individual is engaged in a real estate purchase transaction. Technically speaking, a 100% financing mortgage is the condition under which a home buyer obtains a mortgage from any lender in an amount equal to the purchase price or appraised value – whichever is less – of a particular piece of real estate property, thereby removing the need to close with cash, any gaps that would otherwise exist between a purchase price and the maximum loan amount. For more clarity, look at it this way:

 For Conventional loans – 80% financing equates to 20% down payment.

For PMI Mortgage Loans – 90% and 95% financing equates to 10% and 5% down payment respectively.

For FHA-insured Mortgage Loans – 96.5% financing equates to 3.5% down payment.

For VA-guaranteed Mortgage Loans – 100% financing equates to 0% down payment.

 Zero down payment loans were sometimes blamed for the subprime mortgage crises, even though there were many other things pointed to for causing last decade's subprime meltdown. Among these supposed causes were “selling homes to buyers who couldn't afford them”; “exotic mortgage financing programs that were predatory in nature”; and “no-income, no-asset verification mortgage loans” to borrowers who were unable to document income and assets in order to qualify for those loans, to name just a few. Some “experts of the day” also pointed to 100% and 97% – no down payment and low down – financing as having helped to perpetuate the problem.

 However, the existence today, of some 100% and 96.5% financing programs is clear proof that, when administered properly, these programs were not contributing factors to the subprime mortgage meltdown. In fact, as Kenneth R. Harney states in his article, 'Zero-down payment mortgages? Credit unions say yes', the VA (Veterans Administration) Guaranteed Loan program for Veterans and their eligible spouses “has a lower default rate than FHA” which requires a down payment of 3.5% (up from 3.0% pre-2010), despite having offered zero down payment mortgage loans for decades.

 So today the Department of Veterans Affairs mortgage guarantee program is one which can be viewed as a successful 100% financing program even by today's standards; but we know the VA loan is restricted to Veterans. Therefore the question becomes, is there 100 percent financing mortgage available to the general public? And the answer to this question is a definite yes! The first of this mortgage type we will discuss is the FHA-Insured “Gift-of-Equity” (GOE) mortgage loan, which requires the home buyer/borrower to be a “relative, spouse, or a domestic partner” of the home seller in order to use the home's equity to cover down payment, as well as closing costs.

 Pursuant to the guidelines of this program, the property can be sold below market value and based on its appraised value, equity in excess of the purchase price can be used to cover the buyer's expenses. Although it is not technically 100% financing mortgage, the fact that a purchase under this GOE program does not pay the expenses out-of-pocket makes it a “zero down payment” financing loan because 100% of cost requirements (down payment and closing costs) are financed in the loan.

 The second of of this mortgage type we will discuss is the USDA Rural Housing Loan which offers No Money Down options for non-military borrowers under the Section 502 mortgage, or more commonly, the Rural Housing Loan. As Dan Green said in his article 'Updated For 2014 : Common Mortgages Which Don’t Require 20% Down payment' USDA Rural Housing loan is 'not just a "rural loan" -- it's available to buyers in suburban neighborhoods, too' because the 'the USDA's goal is to reach "low-to-moderate income home buyers", wherever they may be.' This mortgage loan program also permits borrowers to “include eligible home repairs and improvements” in their loan size; and there are other features that make this particular mortgage loan beneficial to low and moderate income buyers.