Unconventional no down payment mortgage loans are difficult to come by in the distressed home loan mortgage market we are experiencing. A tremendous number of no down payment mortgage loans with escalating ARM’s were made to people who should never have qualified for a loan in the first place.
When housing prices fall, as they did in last few years, people with unconventional no down payment mortgage loans found themselves upside down with respect to their mortgage. They ended up owing more on their mortgage than their home was worth. This precipitous fall in housing prices created huge numbers of foreclosures and people literally just walked away from their homes.
Because of the subprime meltdown there are very few conventional lenders willing to make no down payment mortgage loans at this time. However, there are still ways to buy a home without a down payment. They include: 1) Gifts and grants as down payments, 2) Programs available with FHA loans, 3) Rural housing mortgage loans and 4) VA home loans.
To get an unconventional no down payment mortgage loans with gifts and grants as down payments you need to find lenders who will allow this type of transaction to take place. Some conventional and sub-prime products allow for this type of contribution to count as your down payment and thus you are freed of making a down payment out of your pocket. Check with your mortgage broker to find out if they know of lenders who will accept this type down payment. American Family Funds is the administrator of the Dove Foundation, which makes grants for this purpose.
Federal Housing Administration (FHA) loans typically require a 3% down payment to qualify for their mortgage loans, however you can effectively get an unconventional no down payment mortgage loan buy having either a family member, relative, or a nonprofit organization gift you the 3% in cash. This money is then applied to the down payment. Traditionally gift money from a family member or relative has always been allowable by FHA. However, third-party nonprofit organization gifts were recently challenged by a lawsuit with HUD and a non-profit organization. HUD lost the lawsuit so third party nonprofits currently are still a source of legal funds for down payments.
The USDA rural development’s Guaranteed Rural Housing (GRH) loan program is available to individuals who live in a rural area whose income doesn’t exceed the moderate income limits for the area in which they live. If you have a steady income and a satisfactory credit history that would qualify you for conventional financing but don’t have money for a down payment, you can get no down payment mortgage loans with this program. The GRH insures the loan provided by a lender against loss in the event of default by the borrower.
Finally, Veterans Affairs (VA) home loans are a great source of no down payment mortgage loans for veterans of the United States Armed Forces and the National Guard. There is certain time in uniform requirements and discharge requirements necessary to be eligible for this type of loan but it is a great program. The VA guarantees repayment of the loan made by a private lender in case the borrower should happen to default. This allows lenders some latitude when taking into account a veteran’s credit score. A veteran need only show that he/she is able to make the payments on the property to qualify for the loan.