How to Get a No-Down Payment, No Closing Cost Home Mortgage

How to Get a No-Down Payment, No Closing Cost Home Mortgage

Many prospective first-time home buyers believe they cannot obtain a mortgage because of the upfront costs of a mortgage transaction, even though they believe they have sufficient income and credit rating to qualify for the mortgage.

The costs of a mortgage transaction can be heavy. The down payment can range between 20% and 3.5% of the purchase price. Even at the low end, 3.5% of a $250,000 loan is $8,750, not an insignificant amount. Add to that closing costs for the mortgage transaction, which can be 2.5% of the loan amount, and you can be well above $10,000 in upfront costs.  This fact, alone, scares off a great number of first time home buyers.

No-Payment Mortgages.

Now, there are several mortgage programs that allow no-down payment mortgages. That is, loan transactions with a 100% loan-to-value. These are established programs: VA-guaranteed, FHA-insured, USDA-guaranteed, and Fannie Mae and Freddie Mac conventional mortgage programs.

These programs require a minimum 620 credit score and a debt-to-income ratio of no more that 43%. They carry a slightly higher interest rate. Also, a few of them are geared to lower income borrowers         ( whose family income does not exceed 115% of the median income of the region.)  Also, the maximum loan amounts are those set by the government. However, these rates and restrictions are not major, and most first time home buyers can easily qualify for them.

No Closing Costs.

All of the above programs allow for the home seller to contribute to the closing costs of the home purchase. They are not obligated to do so, but a savvy purchaser can normally negotiate a seller contribution ( also called a “concession”) towards closing costs. FHA, VA and USDA allow up to 6% of the sales price for seller concessions, while Fannie Mae and Freddie Mac allow 4%.  In either case, there is normally enough to pay all closing costs.

So, a first time home buyer who researches the market and knows the rules, can easily arrange a no-down payment, no closing cost home mortgage financing. There is no reason to be discouraged.

(  All Credits Mortgage has the largest inventory of no-down payment mortgages in the state of Virginia.)