Buy a home with zero down, legally.

Can you really buy a house with no money down?

Everyone is interested in buying a home with no money down. Saving enough money for a down payment is one of the biggest obstacles to homeownership in the United States. Here are some of the ways you can buy a home with no money down.

Most mortgage programs require a minimum of 3-5% down in the form of the borrower’s own cash. FHA, however, allows that 3% to be a total gift, as long as the gift does not come from anyone who will benefit from the sale of the house. That eliminates the realtor, the seller and any other direct party to the transaction.

The best source of gift funds is immediate family. Sometimes your employer has a reason to want you in a good housing situation and this would make them eligible to help. One thing is for certain. The lender is absolutely required to “trail” those funds and prove that they came from the same person as the one who signed the form saying they were a gift that does not have to be repaid.

Another way to buy without using your cash is to get 100% financing. There are loan programs designed for Affordable Housing Programs that allow 100% financing and sometimes even 103%, which would help with most of the closing costs. Generally your credit profile needs to show you understand the serious responsibility of paying your bills.

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If you have excellent credit and are willing to pay a higher rate to obtain100% financing, then you can combine loans to add up to the full amount. The lender can write an 80% first mortgage (the 80% is for the purpose of avoiding mortgage insurance.) and then give you a 20% second mortgage at the same time.

This is riskier for both parties because the house will have to appreciate quickly for you to have any equity. If you wanted to sell in the first few years, it would probably cost you cash to pay the costs of selling because the increased equity in your home might not be enough.

There are non-profit organizations designed to promote home ownership and some of them have down payment assistance is one of those companies. I am not recommending them over any similar program, but I have seen them in action and they do perform the way their site describes.

HUD regulations change from time to time and so do the loan programs at FNMA and FHLMC, so some programs may not be eligible for some loan programs at the time YOU apply. Your loan officer will be able to find the programs in your area if you’re interested.

Copyright, Judi M Moore, 2rHouse, June 15, 2005, all rights reserved