When putting down money on a home, the traditional amount is 20% of the home price.
However, there are ways you can put no money down on your mortgage when purchasing a home. No money down, or zero down, mortgages were readily available prior to the housing crisis of 2008 before the rules were changed. Now, they are only available to select individuals.
No Money Down Mortgages Help Open Doors To Homeownership
One of the main attractions of no money down mortgages is that they help open doors to homeownership. These mortgages are especially useful if you are a veteran or purchasing home in a rural area with low or moderate income via government-backed USDA and VA loans. You will need good credit, sufficient income, and in the case of VA loans, a VA certificate of Eligibility.
You Begin With Less Equity & Interest Rates May Be Higher
Because you put zero down on your mortgage, you are starting out with less equity on the home. This means that you do not own any percentage of the home outright upon purchase. This can prevent you from refinancing your mortgage or getting a home equity line of credit.
You will also be what is known as a “high risk borrower”. As a result you may experience higher interest rates on your loan. This is because lenders typically save the best interest rates for those borrowers who are able to put down cash upfront.
Look For Alternatives & Work With Your Lender
Before deciding if a no money down mortgage is right for you, carefully weigh the pros and cons and shop around. Even if you do not qualify for a no money down mortgage, you may be able to buy a home with a smaller down payment. FHA loans and HomeReady by Fannie Mae are just a few of the options available to you to.
Work with your lender to find the best mortgage program for you. They will provide you with the information you need to make informed decisions about the best method for purchasing your home.