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How to Buy a Home With A No-Down-Payment Mortgage – 2016

4 no down payment car insuranceFor many prospective house buyers it may be difficult to cough up money for down payment.

This may be because they have to pay rent or may be saving for retirement or building an emergency fund.

In case of families with children, parents have to worry about saving money for their children’s education.

A no-down-payment mortgage gives the borrowers the ability to fund their investment without having to shell out any money upfront.

But many leading investment planners suggest paying a down payment of 20 percent to avoid paying for mortgage insurance.

Therefore a careful analysis of the pros and cons of no-down-payment mortgage is required before making your decision.

 

If you are worried about the high down payment amount there are a few options you can consider. If you have a good credit score and a steady monthly income, there are some programs that allow borrowers to buy a home with zero or minimal down payment

The VA loan is no down payment mortgage scheme which is backed by the U.S. Department of Veteran Affairs. This program is offered to former members of the US military with a minimum of two years of experience or 90 days if they are still serving. This is also open to their spouses.

The flexible terms of a VA loan gives an opportunity to veterans who may struggle otherwise to become house owners due to insufficient funds.

VA loans have become increasingly popular because of the below signature benefits the program offers.

 

Pros

Cons

You will be able to secure a mortgage loan without putting down any money The interest rate is higher
Helps you to save cash to meet loan obligations The loan balance will be higher and therefore the tenure of the loan will be longer
You can invest the money saved from down payment and make the money grow The monthly payment will also be higher due to the higher interest rate.
  • No down payment mortgage

As a VA loan has the backing of the federal government, servicemen can avail mortgage with no down payment. In the event that a service man defaults on the loan, the government will pay a portion of the loss to the lender.

This is known as VA loan guarantee. There is a limit fixed on the loan guarantee that differs from place to place.

  • No need for Mortgage Insurance

If a borrower avails a no down payment mortgage from a conventional lender, then they are required to pay a monthly mortgage insurance fee.

But when a veteran seeks a VA loan, there is no need to for monthly mortgage insurance fee. This is because the federal government takes on the risk and will repay the lender in the event of a default.

  • Low interest rates

The interest rate charged by the lenders is determined by the level of risk they are exposed to after giving the loan.

As VA loans have the backing of the federal government, the lenders are exposed to minimal risk and hence are able to offer loans at low interest rates.

On an average the interest rates are 0.5 to 1 percent lesser than the traditional interest rates.

  • USDA Loan

The USDA loan is aided by the U.S. Department of Agriculture. It is very popular because of the flexible credit requirements and no down payment mortgage.

The aim of the USDA loan is enable people from low to moderate income levels to buy, renovate or repair their house. In order to qualify for the loan the borrower has to meet the location eligibility criteria along with the income limitations.

This type of loan allows you to include any repair or home improvement costs as part of your loan amount. The rate of interest offered for USDA loans are lower than the conventional loans. But there is a mortgage insurance fee that has to be paid on a monthly basis.

An upfront guarantee fee is required to be paid for USDA loan. But this can be made part of the total loan so that there is no need for any cash payment at the time of closing the loan. The guarantee fee is capped at 3.5% of the loan amount that is required by the borrower.

Advantages of USDA loan

  • The loan terms are flexible

  • There is no down payment required

  • It is backed by the government

  • You can roll in any costs associated with closing into the loan

There are different types of USDA loans. Below is a brief overview of the same.

4 no down payment cara.      Single Family Direct Homeownership USDA Loan

An USDA loan that is aimed at low income families who have houses in rural areas. This loan aims to help them buy, repair and renovate their houses.

To qualify for this loan, one should have the following.

  • A total household that is less than 80% of the median income earned by the people residing in that area.

  • Inability to secure funding from other lenders

  • Ability to pay the mortgage, tax and insurance amounts

  • Lack of adequate housing

  • The house that the borrower intends to buy should be reasonable for that particular area. This means that the market value, size and design of the house must match the standard of the houses existing in that area.

b.      Single Family Guaranteed Housing USDA Loan

A  USDA loan that is aimed at moderate income families. To qualify, one should have the following:

  • A total household income of not more than 115% of the median income of the area.

  • Ability to pay mortgage, tax and insurance amounts.

  • A moderate credit score.

This type of loan is for a period of 30 years. The interest rates however, depend on the lenders.

c.       Rural Repair and Rehabilitation USDA Loans and Grants

People with a low income are offered grant and loans for repairing or renovating their houses to ensure a safer place to live in.

In order to be eligible for the loan, the borrower must fulfill the below terms.

  • Age of the borrower should be 62 years or above.

  • Inability to secure credit from other sources

  • The income should be below 50% of the median income of the area.

d.      Mutual Self-Help USDA Loans

This loan is offered to families with a low income, who cannot afford safe homes and are willing to build a house of their own. The majority of the labor oriented work is done by families themselves.

This loan’s tenure is for a maximum of 38 years and has a very low rate of interest. The interest rate can be as low as 1% of the loan amount, thus enabling the deserving candidates to avail of this loan.

In order to qualify for this loan, the income should be less than 80% of the median income of the area. The borrower should also not be able to secure credit anywhere else and not possess adequate housing.

[PDF]Rural Home Loans (Direct Program) – USDA Rural Development

Car loans with zero down payments

Apart from zero down payments home loans, many lenders are extending the benefit and allowing borrowers to own their dream cars with no down payment car loans.

The borrowers can search and get quotes from various lenders online within the comforts of their homes.

This type of car loan is especially useful for people in the following situations:

  • People who are heading to buy their first car

  • Borrowers who have fixed monthly incomes and inadequate funds for down payments

  • People with low credit rating

Before seeking a car loan with no down payment, it is important to consider the below points:

  • Find a good lender

In order to increase your chances of securing a faster approval, you must approach specialized car loan lenders instead of opting for conventional car loans.

The car loan lenders are in a better position to offer loan at a lower rate and without any down payment.

  • Trading off the old car

If you choose to trade in your existing car, many car loan lenders will further lower the interest rate and exempt you from paying a down payment.

  • Rebates

Many car loan lenders offer attractive rebates. Therefore you must check with the lenders if you are eligible for any such rebates.

  • Apply online

It is advisable to apply for a car loan online with a reputed and reliable national car finance service provider offering low interest rate.

4 no down payment mortgageAdvantage of no down payment car loans

Buying cars with no down payment is becoming very popular due the below benefits attached to it:

  • Borrowers are not required to pay an upfront amount in order to get their car loans approved.

  • Borrowers have the option of trading their existing cars in case any lender asks for down payment for getting the car loan approved.

  • If the borrower chooses to pay a down payment even though it is not mandated, they will be able to secure the loan at a lower rate of interest.

  • The borrower has the option of repaying the loan amount in a shorter time frame so that they can close the loan quickly.

Car insurance with no down payment

There are many companies that offer no down payment car insurance. But it is important to choose national car insurance service providers in order to avoid any frauds.

Before deciding on a car insurance service provider, it is important to take the below points into consideration.

  • Tie up with companies

Many car insurance companies, have tie ups with corporate companies that allow employees of the particulate organization to obtain car insurance without a down payment.

Therefore you must contact your HR help desk to explore the various options.

  • Search online

There are many car insurance companies that allow customers to avail their services online. You will be able to compare the rates of multiple car insurance service providers that offer zero down payments before making your choice.

  • One time premium

If you can afford to pay the yearly car coverage premium in one shot, then you must choose to do so. This will help you to save money.

  • Choose an appropriate payment plan

If you choose an auto pay plan for paying the premium for your car loan with no down payment, there are a few insurers who will agree to reduce the interest rate or offer some discounts.

Tips on getting a discount on your car insurance with no down payment

  • Improve your driving record as insurance companies take this into consideration while assessing the risk profile of the customers.

  • A college or high school student can secure a discount from the insurance companies by maintaining a GPA of 3.0 or above consistently.

  • Insurance companies tend to lower the premium if the car is fitted with safety devices such as air bags, alarms, locking systems etc.

  • People who are nearing retirement are offered discounted insurance packages.

  • Bulk discounts are offered by insurance companies as part of their tie up with corporate.

  • Discounts are also offered to drivers who have taken a course in safe driving from any government certified institute.

Conclusion           

Apart from the no down payment mortgage programs discussed in the article there are a few other programs that offer mortgages with a very minimal down payment. The below table provides a brief overview of the minimum down payment required under various plans.

Plan name

Down payment required

VA loan 0% down payment
USDA loan 0% down payment
Conventional 97 mortgage 3% down payment
Home ready mortgage: 3% down payment
FHA loan 3.5% down payment

Before deciding on opting for a no down payment home or car loans it is advisable to go ahead with it, only if you are standing on a strong financial ground. A zero down payment plan should not be a trap that leads you into an endless pit of debt. Planning your finances carefully will help in preventing you from making the wrong choices.

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