Saturday, August 17, 2013

No Money Down Mortgages With Poor Credit

The housing market seems to have begun recovering. Home sales are starting to rise again. You are ready to jump in and buy a home but you have no money to put down. You realize that home affordability is rising faster than your ability to put down a down payment. What can you do and what are your options?

Sub-prime lenders are willing to approve no money down mortgages to those of us with bad credit. These mortgages usually do not require any private mortgage insurance. But choosing the correct mortgage requires you to know the requirements of each possibility.

After the recent real estate collapse and all the foreclosures, why would lenders be willing to lend with no money down? Two reasons exist for this. First, as home prices start to rise again home buyers are seeing equity build in homes that are 100% financed. Second, lenders have automated much of the loan review process and are in a better position to assess your ability to repay your mortgage.

No Money Down Mortgage Types

One hundred percent financing means you are applying for a mortgage to cover the entire purchase price. Most mortgages are 80/20 loans, which require you to put down 20 percent of the purchase price as a down payment. It is possible to put no money down by finding a lender to finance the 20 percent. This can be the same lender as is financing the other 80 percent in the form of a second loan. It is also possible that a motivated seller will put up the 20 percent and will carry the 20 percent mortgage.

Both ways allow you to purchase your home without putting any money down at all.


For every lender there are different loan approval criteria. Sub-prime lenders will even lend to you if you have declared bankruptcy or have suffered foreclosure. They will generally require that at least one year will have passed since the foreclosure or bankruptcy. Conventional lenders generally require that between two and four years have passed.

Anyone with a credit score higher than 600 and large reserves of cash can easily qualify for no money down mortgages. If you have six to twelve months of cash reserves you will sail through the process. The cash can be held in savings, money market or other liquid investment accounts.

The 80/20 mortgage with the seller financing the second mortgage can be approved with a credit score of 560 when using a sub-prime lender.

Finding a Lender

Both conventional and sub-prime lenders offer zero-down sub-prime mortgages. Always get multiple quotes before choosing a lender. You want to make sure that you have found the best terms and the lowest interest rate.

Also contact the Better Business Bureau before dealing with any lender. Check out their reputations to make sure you are dealing with a legitimate and reliable lender. Read all fine print carefully. Watch out for hidden fees and penalties.

Within the two types of no money down mortgages there are two types of financing. You can go with fixed rate or adjustable rate. It is easier to qualify for an adjustable rate mortgage (ARM) and it will have a lower initial interest rate. Fixed rate mortgages offer the guarantee that the interest rate and your mortgage payment will remain constant throughout the life of the mortgage.

If you are planning to refinance within a few years of obtaining your mortgage, an ARM may be a better deal. Assuming that you have improved your credit rating because of your regular monthly mortgage payments, you can refinance with a higher credit score and convert to a conventional mortgage with low interest rates.

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Author: Mohammad Waqas
Mohammad is the founder of WINFOPTC. He loves to spend time with his blogs and loves to help the people over the internet. Read More →

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