Many people think achieving the American dream (home ownership) is far beyond their reach because they just can’t come up with enough cash for a down payment. But home ownership is still possible because there are other options – even zero down payment options. Yes, traditional, conventional mortgages require a hefty down payment, sometimes as much as 20% of the purchase price. There are, however, other ways for you to achieve your dream of home ownership if you are a first-time buyer or just can’t save enough for a down payment. With that in mind, we offer this zero down loans explained for Tampa Bay home buyers.
Top Zero Down Loans for Tampa Bay Home Buyers
The top three choices for zero down loans are:
This is an excellent one of the zero down options for those who can qualify. “The VA guarantees purchase mortgages with no down payment required for qualified veterans, active-duty service members and certain members of the National Guard and Reserves.” The loans are originated by private lenders, and the VA guarantees them. Although borrowers don’t have to pay any mortgage insurance, they do have to pay a “funding fee, which can be rolled into the loan amount.”
This funding fee can vary from 1.25% t0 3.3% of the loan amount. The size of the fee depends on whether any down payment was made and whether the borrower served/serves in the regular military and for how long. Typically, for “first-time buyers making no down payment, the funding fee is 2.15 percent for members or veterans of the regular military, and 2.4 percent for those who qualify through their service in the Reserves or National Guard.”
NAVY FEDERAL CREDIT UNION LOAN
Navy Federal Credit Union is the country’s largest credit union in terms of both assets and membership. This institution offers 100% financing – which means no down payment – to qualified members who want to buy primary homes. Eligibility for these loans is extended only to members of the military and some civilians employed by the military and U.S. Department of Defense, as well as family members of these eligible people. This is a zero down program similar to that offered by the VA.
The USDA Rural Development program offers a very popular guaranteed mortgage loan program – so popular, in fact, that it often runs out of money before the end of the fiscal year. A big part of its popularity is owing to the fact that it isn’t limited to farmland as the name would seem to imply. Within certain geographical areas, this program offers zero down loans to first time home buyers with limited incomes. These loans require no mortgage insurance but do require an annual guarantee fee of 0.35% of the loan amount, which can be rolled into the loan.
Pros and Cons of Zero Down Loans for Tampa Bay Home Buyers
As with anything, these zero down loans come with certain pros and cons, such as:
- You don’t have to put any money down.
- You can buy a home sooner because you don’t have to save up a down payment.
- You get to keep more of your cash for other expenses like closing and repairs.
- Borrowing the full value of the home puts you at more financial risk in the case of property values taking a downturn in your area.
- Without a down payment, you will be perceived as a higher risk by the lender and so will likely have to pay a higher interest rate.
- Your mortgage may come with higher fees.
- Your monthly mortgage payment will be higher.
The Long-Term Cost of Zero Down Loans
According to those who keep an eye on such matters, the Federal Housing Finance Authority (FHFA), “which has authority over Freddie Mac and Fannie Mae,” is beginning to keep a closer watch “lender-funded down payment discounts, particularly when borrowers are charged higher interest rates or additional fees in order to reimburse the lender’s participation.” With some of these programs, says Stefanie Johnson, FHFA spokeswoman, “a higher mortgage note rate. . . is passed on to the borrower. In other words, the borrower may end up paying more over the life of the mortgage than what the lender provided in assistance.”
This practice is known as “premium price.” And the upshot is that if you are seeking a zero down loan, you need to shop lenders so that you don’t fall victim to premium pricing.
Where to Find the Answers
Zero down loans can be a great way for Tampa Bay home buyers to achieve their dream, especially in this tough economy. Yet there are cons and risks such as premium pricing. That is, of course, why we are offering this explanation of zero down loans for Tampa Bay home buyers. Still, you need to research, shop, and choose wisely.