In many housing markets across the country, the increase in home prices does not match the average household income. Hence, many people are unable to save money for a down payment. Ideally, mortgage companies prefer applicants to have a down payment of at least 5%, in addition to paying closing costs. Unfortunately, this is an unrealistic expectation. Thus, many homebuyers are taking advantage of zero down mortgage loans.

How Do Zero Down Loans Works?

Fortunately, many mortgage companies recognize how difficult it is to save for a down payment. Thus, some lenders have created special loan programs that make it possible to buy a home with little out-of-pocket expense. Ordinarily, if you had a down payment for a home, you would obtain better rates. However, because of low mortgage rates, you do not need a down payment to secure a good rate.

There are many options for a zero down home loan. For starters, some mortgage lenders offer an 80/20 loan. This involves offering a mortgage for 80% of the asking price, and a 20% home equity loan for the remaining balance. This option is very useful; moreover, homebuyers avoid paying private mortgage insurance.

Additionally, homebuyers may obtain a mortgage loan for 103% of the asking price. This is beneficial because it allows new homebuyers to afford down payment and a portion of the closing fees.

How to Find a No Money Down Mortgage Loan?

If you are hoping to buy a home with zero down, contact a mortgage broker. There are various loan programs that offer zero down loan options. However, you must be willing to look for them. If using a mortgage broker, the company can help you find a lender.

Brokers have access to loans offered by private lenders, government programs, sub prime lenders, etc. Meeting the qualification for a zero down mortgage will vary according to lenders. Some lenders require good credit, no bankruptcies, etc. Meanwhile, other lenders are eager to offer no money down loans to people with less than perfect credit. Working with a mortgage broker can make your dreams of homeownership a reality.

When applying for a mortgage loan, down payments are generally required as part of the financing. Many traditional mortgages will only finance 80 percent of the home price. Thus, homebuyers are obligated to provide the additional 20 percent. Having a down payment of 20 percent is ideal in a perfect world. In reality, few people have access to this type of money. For this reason, mortgage lenders are offering 80/20, or piggyback mortgage loans.

How Do 80/20 Home Loans Work?

The concept around 80/20 home loans is very simple. Ordinarily, if a homebuyer did not have a down payment of 20 percent, they would have to purchase private mortgage insurance, (PMI), to complete the home financing. On average, PMI increases mortgage payments by $100.

If accepting an 80/20 home loan, PMI is not required. Instead, homebuyers receive two loans to finance the home purchase. A first mortgage is approved to finance 80 percent of the home cost, whereas a second mortgage or home equity loan is approved to finance the remaining 20 percent.

Who Qualifies for an 80/20 Home Loan?

Any homebuyer hoping to avoid private mortgage insurance may qualify for an 80/20 option. Piggyback loans are especially beneficial for first time homebuyers. Young couples will also benefit from these loans. Usually, these individuals have not been able to build a large cash reserve. This way, they do not have to put off buying a home.

An 80/20 home loan is also offered to individuals with poor credit. Mortgage lenders vary in their loan qualification guidelines. Traditional lenders such as banks, credit unions, and mortgage companies prefer applicants that have a high credit rating. Thus, they may not approve loan requests for credit scores that fall below 640.

On the other hand, many lenders offer a range of bad credit mortgage loans. These consist of loans that provide assistance for down payments, closing costs, low mortgage rates, etc.

Applying for an 80/20 Loan with Bad Credit

Mortgage brokers are very effective with helping bad credit applicants find a fitting home loan program. To smooth the process, brokers have websites available, which offer explanations on various bad credit home loans. Moreover, you can request a mortgage quote online, and receive up to four offers from different lenders granting piggyback loans to people with bad credit.