It was only five or six years ago when just about every home buyer with a pulse could purchase a home with no money out of pocket. As a result of the relaxed lending guidelines, we’ve experienced one of the worst housing crisis that most of us have been exposed to in our lifetimes.
Fast forward to 2012 and there are still multiple low and no money down mortgage programs. The requirements for these remaining financing alternatives are more restrictive than in recent memory. Still, for the right home buyer, these products can help fulfill a need while spurring the real estate market.
The following program are options for those looking to purchase owner-occupied residential real estate with little to no money out of pocket:
VA Mortgages (Veterans Affairs)
VA loans are made by private mortgage lenders and the loans are guaranteed by the Department of Veterans Affairs. These loans require zero down payment. VA mortgage do have a funding fee which can be rolled into the loan amount. And unlike many other low money down instruments, there is no private mortgage insurance requirement. VA loans may also be assumable.
FHA Loans (Federal Housing Administration)
Since 1934, the Federal Housing Administration has been helping people achieve their dreams of homeownership. After the majority of low money down mortgage programs disappeared, FHA loans became the most popular option in this niche. A 2011 report on DQNews.com noted that FHA insured loans accounted for nearly 33% of all loans in the 20 markets they surveyed. That’s up from an estimated 1.8% market share in 2006.
FHA loans are made by approved FHA mortgage lenders and the loans are insured by the FHA. Buyers can obtain FHA financing with as little as 3.5% down and current homeowners can also use FHA loans to refinance and cash-out loan-to-value limits may be greater than what’s available through conventional lending outlets. FHA loans can also be used for financing mobile homes and rehabilitating properties (203K loans).
USDA Rural Housing Loans
USDA mortgages are designed to help low income borrowers in rural communities purchase residential real estate. These loans require no money down but do have a guarantee fee which can be rolled into the loan amount. USDA rural housing loans also allow for some seller paid closing cost assistance and little cash reserves are needed.
Consumers may also be surprised to learn that USDA financing is available in areas of their communities which may not seem very rural. In my home market of Wilmington, North Carolina, a city of well over 100,000 people, nearly half of the city’s geographic area is USDA eligible. You can find out if a property qualifies on the USDA web site.