Subprime lenders now offer loans with no down payment. The interest rates on these loans are higher, but they make it easier to buy a house. And, unlike a traditional loan, you don't have to pay for private mortgage insurance. There are two different kinds of zero-down mortgage packages, and each has its own rules.
Loans with no down payment
As the name suggests, 100% financing is a way to pay for your property in full. The other choice, 80/20, uses two loans to pay for your mortgage. Your lender may take care of both loans, but sometimes the 20 percent mortgage must be taken care of by the seller or a second lender.
100% financing makes things easier, but not all lenders offer this type of home loan. Most people use 80/20 financing, but if the seller is involved, it can be tricky to work out.
How to Qualify for Zero-Down
Each lender has their own rules about who can get a loan with no money down. Most subprime lenders won't give you a loan if you've been bankrupt or lost your home in the last year. For a conventional loan, these must have been paid off between two and four years ago.
The best is to have a credit score of 600 or higher, but having a lot of cash on hand can also help. Ideal is to have six to twelve months' worth of cash on hand in the form of savings, a money market account, or other liquid assets.
If you choose 80/20 financing and the seller pays the second mortgage, you can get a loan from a sub-prime lender even if your credit score is only 560.
Zero-Down Sub-prime Lenders
You can find sub-prime mortgages with no down payment from both large sub-prime lenders and small sub-prime lenders. Make sure you ask as many mortgage lenders as possible for quotes to make sure you get the best rate and terms.
You'll also need to choose the kind of mortgage you want. A loan with an adjustable rate is easier to get and has lower rates. A fixed-rate mortgage gives you the peace of mind that your interest rate will stay the same over the life of your loan.
Most of the time, an ARM is a better deal if you plan to refinance in the next two years. After you fix your credit history, you can get a low-interest conventional mortgage by refinancing.
