It used to be that people saved for years and years for a home. They made sure they had enough money in the bank for a 20 percent down payment and mortgaged 80 percent of the price of the home. If they could not put 20 percent down, they would have to pay for mortgage insurance on their home. Nowadays, with real estate prices so high, many people would never be able to buy a house if they had to save 20 percent of the sales price. Luckily, people now have another option. They can buy a home with no down payment. Sub-prime lenders now offer mortgages with no down payment. There are two types of no-down-payment mortgages: 100 percent financing or 80/20 loans.
With a no-down-payment loan with 100 percent financing, you will have only that one loan for the entire sales price of your property. Your interest rate will be slightly higher because there is no down payment, but this type of mortgage offers you the opportunity to buy a home without putting out cash up front. Keep in mind that not all lenders offer such an option, so you will have to do your homework and find an appropriate lender.
A no-down-payment loan with 80/20 financing is actually two loans. You have one mortgage for 80 percent of the sales price and a second mortgage for 20 percent of the sales price, which of course is the down-payment price. This type of loan is more popular because it allows you to carry a regular interest rate on the 80 percent loan; however, it may involve negotiating with the seller.
Every mortgage lender has its own measures to qualify you for a no-down-payment loan. Usually, any bankruptcies or foreclosures must have occurred at least one year prior. Ideally, you will also want a credit score of 600 or higher for 100 percent financing. If you choose an 80/20 loan, you may be able to qualify with a credit score of 560.
You can find no-down-payment mortgages with both conventional and niche sub-prime lenders. Be sure to request quotes from as many mortgage lenders as possible to help you find the lowest rate and best terms.
You will also want to decide what type of mortgage you want. An adjustable rate mortgage is easier to qualify for and has lower rates. A fixed rate mortgage offers the security of a constant interest rate over the life of your loan. Typically, an adjustable rate mortgage will be a better deal, as long as you refinance before your loan is scheduled to adjust.