How to Qualify for a Zero Down Mortgage

For home-shoppers short on cash, zero down mortgages can make a home purchase a possibility.

This page:

  • Explains how a zero down mortgage works

  • Lists the benefits and drawbacks of these home loans

  • Links to lenders who offer low-rate zero down mortgages

In this section on special mortgages we take a look at jumbo mortgages, express mortgages, cash saving mortgages and more.

How zero down mortgage programs work

With a zero down mortgage, the standard down payment requirement is waived. Your lender finances your home's entire cost in return for a higher interest rate on the loan.

Zero down mortgages are very versatile products that can be used to solve several home buying problems with one blow. Closing costs can be wrapped into the principal and PMI can be waived in favor of a higher interest rate.

And, of course, with no down payment requirement, you can afford much more much sooner.

So the question is, does the ability to buy now outweigh the higher interest rate on a zero down mortgage?

The advantages of zero down mortgages

Well, you can guess the big plus here . . . you don't have to have the huge savings account that it normally takes to qualify for a home loan. That means a lot more purchasing power.

And although accepting a higher interest rate means you pay a lot more in total financing costs, interest paid on a mortgage does have the advantage of being tax-deductible. (Unlike PMI, which there is absolutely no advantage in paying.)

Sidebar
Our recommended prime lender Eloan offers zero down payment mortgages with an LTV of up to 107% (with no PMI!).
And for the home buyer who has trouble qualifying with prime lenders, FullSpectrum Lending offers a zero down bad credit mortgage.

The disadvantages of zero down mortgages

Of course, there's a reason behind the 20%-down-payment rule of thumb. The 20% requirement makes mortgage funding a much smaller risk for lenders. Since you don't have the funds to pay the 20%, you'll have to pay extra for being a riskier investment.

The higher interest rate means paying a lot more for your home in the long run (unless you refinance).

And even if you do refinance once you've earned 80% equity in your home (it probably won't be feasible until then), you will have already lived through the worst of the financing charges.

Should you opt to wrap closing costs or points into the principal, pushing the LTV over 100%, you'll be "upside down" in the loan, which is expensive and a little financially risky.

The bottom line . . .

So is buying now worth the "gamble" of a zero down mortgage? It all depends (of course!)

If financial security and total overall cost matter a lot to you, a zero down mortgage might be too risky.

However, buying is almost always better than renting, and building equity, no matter how slowly, is rewarding in the end. A zero down mortgage can help home ownership become a reality for you much sooner than it would otherwise have been.

Search Eloan's low rate zero down mortgages. They don't charge PMI (a great deal for you), and they guarantee no lenders fees!



Next: A look at Low-Doc mortgages.

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