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This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home's sale price, the term of the loan desired, buyer's down payment percentage, and the loan's interest rate. This calculator factors in PMI (Private Mortgage Insurance) for loans where less than 20% is put as a down payment. Also taken into consideration are the town property taxes, and their effect on the total monthly mortgage payment.
The allure of being able to buy a home with “Zero Money Down”
can be pretty strong if you’re short on down payment cash. Real
Estate investors who buy homes and flip them for a profit are
also attracted to these types of loans because they reduce the
amount of capital that is tied up in their property portfolio.
Is this a case of “Sounds too good to be true?”
These types of loans are written every day. Let’s take a look
and see if one of these zero money down mortgage programs is a
fit for your home buying needs.
The 100% Loan with PMI
Mortgage down payments are necessary buffers used by lenders to
protect themselves from potential loss due to the costs of
foreclosing a property in case of loan default. A 20% down
payment is considered sufficient protection, and is therefore
the industry standard. Any amount less than that will require
some other method to reduce the lender’s risk.
One such method is private mortgage insurance, or PMI, which is
paid by the borrower for insuring the lender against loss. You
will have to pay it until you have built up 20% equity in your
home.
When obtaining this type of no money down loan, you are simply
taking out a mortgage loan for 100% of the home’s cost and
paying PMI.
The 2/28 or 3/27 Loan
If you decide to take a 100% loan, you may be restricted to
2/28, 3/27 or similar loans, especially if you have low FICO
scores or have been determined to be a sub-prime borrower for
any reason. Depending upon whether it’s a 2/28 or 3/27 loan, the
interest rate is fixed for the first two or three years and then
is variable for the remaining life of the loan. Loans in which
the interest rate is fixed for a number or years and then
becomes variable rate are also known as hybrid loans.
If your FICO scores or whatever conditions caused you to be
classified as sub-prime can be remedied during the fixed
interest rate period, then you can apply for a more conventional
mortgage before the variable rate period starts.
The 80/20 Mortgage
This is one of the most common programs and it works like this:
The lender writes you a mortgage for 80% of the selling price of
the home and then either the same or an affiliated lender writes
you a second mortgage for the remaining 20% of the home’s value.
This is a good solution for avoiding PMI (Personal Mortgage
Insurance) payments for borrowers who do not have a 20% down
payment available.
One of the down sides of this solution is that you usually have
to pay two sets of closing costs, but those costs will still be
far below what a typical 20% down payment runs.
In most cases your combined monthly payments won’t be
significantly higher than they would be with a conventional loan
although you will end up paying a slightly higher interest rate
on the second mortgage. However, in many instances the
specifics of a 80/20 loan deal make it cheaper than taking a
single mortgage and paying PMI.
The 100% Loan
This is the least complicated loans because it only requires one
lender to write one loan for 100% of the home’s selling price.
The interest rates can be significantly higher than with the
80/20 loan plus you will have to pay PMI until you have built up
20% equity in your home.
VA Loan
If you are an honorably discharged veteran of the United States
Armed Forces then a VA (Veteran’s Administration) loan offers
100% financing without incurring the penalty of having to pay
PMI.
Lenders who participate in VA loan programs have less stringent
qualification requirements because the U.S. Government is
guaranteeing the borrower’s performance. This means that
borrowers who might not otherwise qualify for a mortgage can get
qualified with a VA loan.
Other No Money Down Alternatives
There are other government loan programs which can get you into
a home with no down payment if you qualify for the terms and
conditions. For example, if you are buying a home in a rural
area then you may qualify for a USDA Rural Housing loan program.
The American Dream Down Payment Initiative law was
recently signed by President Bush and it offers another avenue
into home ownership. There are some qualification requirements
including that you be a first-time home buyer who is purchasing
single-family housing that you intend to live in. The term
“single-family” includes conventional one-family housing, a
condominium or co-op, as well as a pre-manufactured or mobile
home.
Even though the law says that you have to be a “first time home
buyer”, the actual definition states that a first-time home
buyer can be a person or married couple who have not owned their
own home during the three years prior to applying for a loan
through the program.
The Federal Housing Administration (FHA) offers low income first
time home buyers the chance for home ownership with just a 3%
down payment. They have the resources available to steer the
borrower towards other Government “down payment assistance
programs” which can end up resulting in a zero money down loan
in the end.
HUD is in the process of getting a true “Zero Down” program
launched and it is expected to become available during 2005 if
Congress passes the legal changes required to make it law. Not
only does HUD want to offer Zero Down loans, but they want to
allow the borrower to roll some of the closing costs into the
loan up to a maximum loan value of 103% of the selling price.
Many State and local/county governments also offer first-time
home buyers and other targeted groups the opportunity to
participate in programs which offer no money down loans.
Your best bet for finding any zero down programs is to do some
research yourself and enlist the aid of a mortgage broker who
specializes in zero money down mortgage programs.
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