No down payment home loan

Owning a home is everybody's dream. But homes are expensive. Taking a home loan by mortgaging the house is a common solution used these days to overcome this problem. If borrower's income levels are satisfactory, and credit rating is good, the lender would obviously be interested. However, the next issue that surfaces is quantum of loan. Most home loan lenders stipulate that borrower must pay 20 percent of cost of the house, before availing the balance 80 percent as home loan What if borrower does not have that down payment amount ? Then there are only two options left. Either home buyer can start saving for that down payment, or take a no down payment loan. Saving for that down payment does\'nt make sense because by the time borrower manages to accumulate the amount, cost of the house would have shot up.

 

In this context, it is necessary to understand what is a no down payment home loan, and what are its implications. No down payment home loan is a type of home loan in which home buyer is not required to pay any down payment.

 

Federal Housing Administration, which is a part of Department of Housing and Urban Development, insures many of these home mortgages. Consequently, it also retains control on rate of interest and terms of such home loans. FHA makes home loans available to high-risk borrowers who are purchasing house for the first time. Apart from FHA, there are other government sponsored enterprises like Federal National Mortgage Association (commonly known as Fannie Mae), Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac), and Government National Mortgage Association (commonly known as Ginnie Mae) which give loans and loan guarantees. However, United States government backs only the guarantees provided by Ginnie Mae. In addition there are Federal Home Loan Banks, that give low-cost funds to financial institutions that provide home loans to home buyers.

 

If government's programs do not cover such no down payment home loans, then the interest rates and terms of mortgage on such home loans are likely to be detrimental for borrower's financial health.

 

There are many other no down payment home loans in United States. Different lenders attach different conditions. Some of the sources and types of no down payment home loans are discussed below :-

 

1. A good credit record and willingness to accept some restrictions related to income makes a home buyer eligible for obtaining 100 percent home loan under Neighborhood Advantage program of Bank of America.
2. Some private lenders give 100 percent finance to home buyers who are buying home for first time. Such loans are may, in turn, be insured by FHA.
3. Private lenders also extend 100 percent finance for buying homes to those home buyers who have a good credit record, even though they may or may not be first time home buyers. The home buyer may be entitled to 100 percent finance through a single mortgage on new home, or the loan may be comprised partly of mortgage on the home, and partly credit like home equity loans. Sometimes such loans may be a combination of a part from FHA or other government sponsored enterprises, or FHL banks, and the balance may be like a conventional mortgage.
4. Veteran's Association also offers no down payment home loans to its members. Such loans are generally guaranteed by Ginnie Mae.
5. Some pension funds also offer no down payment loans to their members.
6. Some builders offer no down payment home loans to prospective buyers with an objective of increasing the sales of their slow moving built-up homes. The terms and conditions of this type of home loan must be examined with extra caution.

Even though a homebuyer may be able to obtain funds for that dream house, the long-term liability it entails must be borne in mind. Homebuyer must also examine closely each term and condition of home loan, and understand their implications, before taking the loan.

 

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