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Do 100% loans exist in 2017?

Yes, they do. 100% financing home loans are mortgages that finance the entire purchase price of a home, eliminating the need for a down payment. New and repeat home buyers are eligible for 100% financing through nationwide government-sponsored programs. Have you assumed that you needed a large down payment? A number of mortgage options are available that allow you to finance 100% of the purchase price. Many first time home buyers assume 100% loans ceased to exist after the mortgage market downturn late last decade. But some zero down home loans survived and are still available in 2017. You might be surprised that you can still buy a home with little or no money out of your own pocket.

The standard down payment on a home is 20%. Fortunately, there are programs for which the government provides insurance to the lender, enabling you to  buy a home with less than 20% down payment. There are a few options, like the USDA home loan and VA loan. Even FHA can be a zero-down loan if you get gift funds to cover the 3.5% down payment. The right loan for you depends upon your eligibility.

While FHA loans are available to anyone  who meets the credit and income criteria, you need military service history to qualify for a VA loan, and you need to be buying in a rural or suburban area for USDA mortgages.

Even though you are getting 100% of the price you agreed to pay the seller of the house you will still need to have money to cover closing costs. Closing costs average anywhere from 3% to 5% of the home’s purchase price and include things like origination fees, title costs, and even property taxes and insurance that you must prepay.

So how do you pay for these extra costs?

There are a number of ways.  You can receive gift funds from a family member, non-profit, employer, down payment assistance program, or other approved source.  Most loan types let you use gift funds to cover closing costs.

Seller credit. When sellers really want to sell a house, they will offer a seller credit. They include in the purchase contract an agreement to help the buyer with closing costs. Sellers can typically offer between 3% and 6% of the home’s purchase price to cover the buyer’s costs. These funds can’t be applied to the down payment, but can reduce or eliminate any need to come up with closing costs.

Credit cards. You can use a cash advance for your closing costs when buying a house. But be upfront with your lender where the funds are coming from— because they will find out one way or another. The lender will have to add the additional credit card monthly payment to your debt ratios, which may
disqualify you for the mortgage. And, a bigger credit card balance can reduce your credit score, so be careful.

USDA loans allow you to take out a bigger loan than the purchase price if the appraiser says the home is worth more than you’re paying. For example, a home is for sale for $100,000 but the appraiser says it’s worth $105,000. You can take a loan out for the whole $205,000 and have five thousand dollars with which to cover closing costs. USDA is the only loan type that allows this strategy.

100% Financing: The USDA Home Loan

The USDA mortgage loan has been around for years, but it has become more popular recently because it requires zero money down and has lenient credit requirements.

It may sound too good to be true, but it’s a legitimate mortgage loan program that over a million home buyers have used since 1949. The USDA loan is a government-sponsored loan that exists to help develop rural communities by encouraging home ownership. That’s why this loan type is also known as the rural development loan.

To qualify, you have to have enough income to support your house payment, but not too much income. You have to be within limits set by USDA.

You also must buy a home that is within USDA’s geographical boundaries. Although the program targets rural areas, many eligible areas are suburban. You may be surprised at how many homes are eligible.

The USDA mortgage even allows the seller to pay your closing costs. This means you don’t have to come up with a down payment, nor do you have to pay  closing costs if the seller agrees to pay them for you. With the USDA loan, it could be cheaper to move into a home you buy than to rent the same house.

There is a 2% upfront fee is usually financed into your loan amount and doesn’t have to come out of your pocket. The USDA also charges $33.33 per month on every $100,000 borrowed as an ongoing fee to make the program viable for future home buyers.

Even with these added costs, USDA loans are a great opportunity to break into homeownership with little upfront costs, and fairly low monthly costs, considering the low interest rates available for this program.

100% Financing: The VA Home Loan

Another mortgage loan that allows you to finance 100% of the home’s cost is the VA home loan. This loan is available to applicants typically with at least two years of former military experience, or 90 days if still serving. The Veterans Administration estimates that 23 million people in the U.S. are eligible
for the VA home loan. That’s about one in every 13 people, and many don’t even know they’re eligible. Anyone who is eligible should take advantage of this zero down home loan program. VA loans have very low rates – usually even lower than conventional loans. And they don’t require a monthly mortgage insurancefee like USDA, FHA, or conventional loans.

When compared to any other low down payment mortgage, VA home loans are the most affordable – in upfront as well as monthly costs.

With a VA loan, you can buy a home with zero down and have the seller pay some or all of your closing costs, meaning you could own a home with no moneyout-of-pocket.Lenders typically allow lower credit scores on VA loans as well. Most lenders require just a 640 score.The VA home loan is the easiest
100% home financing option available. If you have served in the military, the VA home loan is worth checking into.

FHA Home Loans can be a Zero Down Mortgage

Federal Housing Administration, or FHA, loans require a 3.5% down payment, which can be quite a lot of money. On a $300,000 home purchase, that’s $10,500. But, there is a somewhat obscure FHA rule that allows you to get around this requirement, in a way. According to FHA guidelines, you can receive a gift for the entire down payment. The gift can be from a family member, non-profit organization, fiancé, or other eligible down payment gift source. That means youdon’t need any of your own money to buy with FHA, if you can find a source for the gift.

So while the loan technically needs a down payment and is not a 100% loan, the effect is the same. If you have a gift source, you don’t have to come up with anything for the down payment. First time home buyers receive down payment gifts more often than you might think. There’s a chance that you know an eligible donor who could help you with all or part of the down payment.

Call now to speak with Jason Kaplan about which loan is best for you.

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