How to Get a Mortgage With No Down Payment

Buying a home is always challenging. As new mortgage guidelines tighten up and required credit scores rise, buying a home with no money down through Conventional channels is almost impossible these days. Just two years ago, getting 95% funding was easy. Now even that is gone. All is not lost, though. I have good news that may solve your problem. There are still a few ways to buy a home with no down payment.

Instructions

1. Apply for a USDA Rural Loan if you live in a rural area. This loan is an FHA loan, but requires no down payment. It is not specifically for first time homebuyers, so anyone can use it. It has some income restrictions in that you can make too much money to qualify for it, but it is designed to help increase home sales in areas where population is low, so have your loan officer check HUD's USDA map to be sure the property address fits this requirement.

2. Get a VA loan if you are eligible. There is no down payment required on VA loans, but you need to have really good credit. Loan limits have increased recently, so you may be able to buy your dream home through VA.

3. Try to get an 80% conventional first mortgage and bypass the mortgage insurance requirement, and get the seller to hold a second mortgage for you. The interest rate of the second mortgage is something you have to negotiate with the seller.

4. Look into FHA, another alternative for homebuyers. Lower credit scores are required than conventional lending. There is a down payment of 3.5% of the sale price required, but this can be a gift from Mom and Dad or a relative, making it a no down payment "out of pocket" for you. If there is no one available to gift you the funds, check into your county's SHIP Program, which may have grant money for you to use as down payment. Negotiate with your seller to pay closing costs, and you will be a happy homeowner with your nest egg still intact.

5. Since the housing market is slow and property values have dropped, you might find a seller who is so motivated, that he would be willing to owner finance his home for you. This is all about what you and he can negotiate, so good luck on negotiating 100%.

Tips & Warnings

• Mortgage lending has changed a lot in the past year. Talk with a seasoned loan officer to learn what route may work best for you. Remember that banks offer their own menu of loan products and brokerages offer many, many menus of loan products. If you have not owned a home in the past three years, buy a home before December this year, and take advantage of a tax credit of $8,000. If you do end up making a down payment, receiving this money from IRS will help repay your costs.

• Any conventional loan that requires Private Mortgage Insurance (PMI), requires a 720 mid score at this time in 2009. Understand that grant money for down payment is available, but each has restrictions. Some are loans that, at some point, must be repaid. Some are true grants with little obligation.