A type of mortgage financing in which a home buyer purchases a property without any downpayment. There are many 100% Loan-to-Value mortgages available nowadays. Most experienced loan officers can also structure a combination of mortgages with lower finance charges to achieve 100% financing.
No money down mortgages are great to use even if you have saved for a down payment. By using the 100% financing, you will be able to cover moving expenses, new furniture, appliances, and any other incidental costs that you may incur while moving.
There are many different lending programs available to achieve 100% home financing. Keep in mind that you still may have to pay for your closing costs even when you are buying a home with no money down. Keeping your money in hand instead of using it for a down payment will keep that money accessible to you, instead of tying it up into your mortgage.
Some programs also will allow you to have an interest only option for no money down 100% financing
Often, you can even avoid out of pocket closing costs by getting the seller to agree to pay them. Most lenders allow up to 6% of the purchase price as seller-paid closing costs. You may need to pay the seller more to get them to pay these costs but it allows you to get into the home with little or no cash.
One of the more popular way to structure No Money Down purchases is to get 100% financing by simultaneously obtaining two mortgages, a first mortgage with the loan amount equal to 80% of the purchase and a subordinate mortgage in the amount of 20% of the price. Many mortgage brokers like this 80/20 loan program because it saves home buyers from costly mortgage insurance premiums.
Some lenders even offer 103% financing. The additional 3% is used towards closing costs. This is a great alternative if you can't get a seller assist. Some times the sellers will not agree to an assist, some times the appraisal is not high enough to use a seller assist. These types of loans are also available as a single loan for 103% or a combo loan of 80/23.
With a no money down mortgage, you may not be paying an origination fee. Instead, the mortgage brokers fee is included in the interest rate. So by paying a slightly higher rate, you may be able to negotiate with your broker to get into a home with minimal to no closing costs.
No money down mortgage programs can have 2 loans, with a low interest rate first mortgage and a higher rate second mortgage. They can also be one loan with mortgage insurance, which can be a one time premium upfront or monthly premium payments.
Either way, your interest rate will be slightly higher than if your were putting 20% down. On the other hand, for a slightly higher interest rate, you can get into a home with no money down!
A seller carry back, meaning the seller of the home actually allows the buyer to pay for a portion of the home over a specified term (not unlike a mortgage), can be used to purchase a home with 100% financing, and offers a way to qualify more easily without looking for 100% financeing from an actual bank.
If you are looking for a true zero down loan you should make sure your lender knows what your goals are. A no money down loan refers to not paying money down on the purchase price, and a true zero down loan refers to not paying any money down for the purchase or closing costs. Letting your lender and real estate agent know will help structure the purchase contract and loan properly.