100% Financing Home Loans

100% financing zero down home loans

If you’re looking for 100% financing on a mortgage, you have a couple of options.

You can even get into an FHA loan without putting any of your own money down.

In this article, we will be explaining the various low and zero down payment home loan options available in 2017.

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Overview of Top Zero-Down Loan Programs

These 100 financing home loans are great for first-time homebuyers or any home buyer that qualifies.

USDA Guaranteed Loans

The U.S. Department of Agriculture has begun offering USDA guaranteed mortgage loanss. These zero-down home loans are becoming increasingly popular thanks to 100% financing, lenient credit requirements, ultra-low interest rates, and flexible mortgage policies.

The primary targets of these loans are low-to-moderate income earners who desire to own a home in USDA eligible rural areas. And this is where things get interesting. Some of the USDA-designated rural areas are actually suburban areas within close proximity to metro areas.

In fact, the USDA home loans are available in 97% of the geographic United States. This is because; the eligibility map hasn’t been updated since 2000.

Even better, the USDA has postponed the schedule to update the map every year since 2013. Therefore, there is a good chance that the non-metro home you intend to buy is eligible for a USDA rural development loan.

USDA Eligibility Criteria

  • Income must be below the USDA established income threshold for your area. Use the USDA income limits map and table to confirm income eligibility.
  • Minimum 640 credit score
  • Credit history and DTI (debt to income ratio) should be decent
  • The location of the home you intend to buy should be in USDA-designated rural area. Go to the eligibility page to verify the loan eligibility of a house.
  • Single-family residence (SFR)
  • Manufactured homes
  • HUD-approved Condos
  • Modular homes
  • Planned Unit Developments (PUDs)

VA-backed loans

VA guaranteed loans might not have the income ceilings nor be location-dependent like the USDA home loans, but they are only available to active servicepersons, veterans, select military spouses, reservists, members of the National Guard, and other select officers.

In addition to 100% financing, low-interest rate, low closing costs, lenient credit, and debt-to-income ratio requirements, VA loans are the only government-backed loans without monthly mortgage insurance premiums.

The VA loan credit requirements are lender dependent. Many lenders require at least a 620 credit score, however, some are able to approved borrowers with a 580 FICO score.

The loans are offered by private lenders that typically also offer conventional loans (such as banks, credit unions, savings and loan institutions, mortgage companies), but are guaranteed by the Department of Veteran Affairs.

VA Loan Eligibility Criteria

  • Honorably discharged veterans who had served for 90 consecutive days during wartime or 181 days during peacetime or six years in the Reserves or National Guard
  • Active duty servicepersons who have served for 90 consecutive days
  • Some military spouses
  • Reservists or members of the National Guard who have served for at least six years
  • U.S. Military, Air Force, or Coast Guard Academy Cadets
  • U.S. Naval Academy Midshipmen
  • World War II Merchant Seamen
  • Officers of the U.S. Public Health Service
  • Officers of the National Oceanic and Atmospheric Administration
  • The borrower should have a valid Certificate of Eligibility

VA Loan Eligible Home Types

  • Hitch-free eligible home types include:
  • Single-family home
  • Modular homes
  • Condos and Townhomes that receive VA approval

Home types that could cause issues include:

  • Manufactured or mobile homes: Difficult to find a lender willing to finance homes of this type even if the property meets VA requirements
  • Properties that are not in “move-in ready” condition, such as fixer-uppers
  • New construction: VA construction loans are available but is associated with a drawn-out process that is tricky

VA Loan Limits

Theoretically, borrowers could use a VA loan to finance a home with any price tag. But there is only so far a military borrower can go if he or she isn’t willing to put any money down.

If a borrower wants 100% financing, the home value has to stay below pre-established VA loan limits. This loan limit depends on the zip code, of course.

For most of the country, the limit is $424,100. However, the VA adjusts the loan limits for high-price areas.

A borrower who intends to buy a home whose price is above the stipulated loan limit for the area would not qualify for a zero-down mortgage and would have to make a down payment (usually 25%) for the difference between the loan limit and the price of the home.

In other words, a borrower gets 100% financing up to the VA loan limit, and then makes a down payment of 25 cents for every dollar above the loan limit.

VA Loan Benefits

  • NO mortgage insurance
  • NO prepayment penalty; a borrower can sell the home at any time of his or her choosing
  • Loans are assumable; in other words, VA loans for a property can be transferred if the buyer is an eligible military borrower
  • Multiple repayment options are available
  • Relatively low closing costs and interest rates
  • Relaxed credit and income requirements
  • Closing costs for a VA loan comprises different fees, including a VA funding fee.
  • The funding fee and closing costs, in general, are not uniform across the board. For example, veterans who receive VA disability compensation are exempt from paying funding fees.
  • VA funding fee can be rolled into the loan amount
  • Closing costs can be paid by the seller
  • The borrower may use gift funds to pay some or all of the closing costs

HomeBuyers Choice Mortgage

The Navy Federal Credit Union is the largest credit union by membership (over 6.7 million) and assets (over $78.6 billion) in America (and by extension, in the world).

The Virginia-headquartered credit union offers multiple home loan types, including FHA and VA loans. However, it has its own selection of zero down home loans that have several similarities with the VA-backed mortgage program.

These similarities include the elimination of mortgage insurance premiums (MIP), the ability to roll the funding fee into the loan amount. The 100% Financing HomeBuyers Choice Mortgage is ideal for first-time homebuyers. However, it is also available for repeat buyers who intend to live in the home they need to finance with the loan.

Eligible Borrowers

  • Veterans and active servicepersons of the military (Air Force, Army, Coast Guard, Marine Corps, and Navy)
  • Some civilian employees of the military
  • Some civilian employees of the U.S. Department of Defense
  • Family members of military personnel

Navy Federal also introduces a variable loan limit, like the VA, on its HomeBuyers Choice Mortgage program. However, unlike VA-backed loans, the HomeBuyers Choice program has two loan types.

The first is the conforming loan type with the typical loan limit of $424,100 (same as that of the VA-backed loan). Similar to the VA loan limit policy, the HC loan limit varies by county and can go as high as $636,150 in Hawaii and Alaska.

One major difference between the VA loan and HomeBuyers Choice loan is the policy for borrowers who intend to finance a home whose price is above the loan limit. While the 100% financing goes away in this scenario for VA loans, the 100% stays for HomeBuyers Choice loans.

A Jumbo Mortgage is needed for 100% financing of loan amounts greater than $424,100. The loan limit for the jumbo mortgage type is $1 million. Expectedly, the mortgage rates for jumbo loans are higher than the rates for standard conforming loans.

HomeBuyers Choice Benefits

  • No mortgage insurance
  • Zero down
  • Fixed rates for 15- and 30-year tenures
  • Low Funding Fee (The borrower can request waiving the funding fee in exchange for a marginal increase in the interest rate)

However, this zero-down mortgage has rates that are generally higher than VA, FHA, and USDA mortgage rates. The NFCU also charges a loan origination fee as part of closing costs. A borrower may also request for waiving of the origination fee in exchange for a marginal increase in the interest rate.

The NFCU also offers another 100% financing mortgage called the Military Choice Mortgage. It exclusively targets veterans and active servicepersons of the military. Unlike the HomeBuyers Choice (HC) Mortgage, the Military Choice (MC) loan can finance both primary and second homes.

In general, the MC loan offerings are similar to the HC offerings. For example, the MC loans are also of two types—conforming and jumbo—with exact loan limits as stipulated for HC loans.

However, a major difference is that while funding fee for the HomeBuyers Choice loan can be waived for a mortgage rate increase, the funding fee for the Military Choice loan is rolled into the loan amount. The only repayment option is a 30-year fixed tenure for Military Choice loans.

Closing Costs

Taking out a mortgage is associated with complementary costs. These costs include an appraisal, loan processing fees, title, mortgage points, even funding fees, et cetera. When a borrower is about to close a loan, all of these costs are wrapped into the closing costs that the borrower has to pay. This is true for both loans that require down payment as well as 0 down home loans.

The closing costs may vary from between 2% to 5% of the home’s purchase price. And oftentimes, there are limits to how high it can go or even waivers to reduce the closing cost (for example, on VA loans for disabled veterans).

Notwithstanding, the bottom line is that closing costs are to mortgages, what taxes are to salaries. So you do not have to ask the question, “What’s that extra fee for”?

That said, the borrower doesn’t always have to pay the closing costs. Sometimes, sellers, home builders, or real estate agents may offer to contribute to or completely pay off the closing costs.

This is called an interested party contribution (IPC). Colloquially, it goes by other terms—seller credit, sales concessions, or seller contributions.

The primary reason for offering seller credit is to sell a home faster. You should ask your real estate agent about asking the seller to pay closing costs for you.

Although several loan types including conventional loans and government-backed loans also have a seller credit limit, typically between 3% and 10%, there are occasions where a borrower may use seller credit to pay off the closing costs completely and may even use the excess creatively to ease payment burden (such as prepayment of homeowners insurance).

Using Gift Funds and Down-Payment Assistance to Obtain a zero-down mortgage through the FHA

FHA loans are the most popular type of home loan used by first-time buyers. The 3.5% down payment can be a gift from a friend or family member, allowing you to put 0 down. While the FHA allows gift funds from a wide array of donors such as family members, charitable organizations, religious institutions, employers, or state-run down payment-assistance programs, Fannie Mae only allows gifts from relatives (by blood or marriage) on its HomeReady program.

You have the ability to have your down payment and FHA closing costs paid for my gift funds. This effectively makes low down mortgages potential 100% financing loans if a borrower can find a donor.

Furthermore, as is standard for most loans with less than 20% down payment, the borrower would have to make regular private mortgage insurance (PMI) payments for conventional low down loans or mortgage insurance premium (MIP) for the FHA low down mortgage or USDA 100% financing loan. Although, unlike the FHA MIP, the PMI for conventional loans can be canceled (this is an advantage of low down conventional loans over FHA loan).

In addition, as mentioned above, closing costs are standard for low down loans too. And you can use seller credit as well to offset some or all of the closing costs.

First-Time Home Buyer Grants

If you’re a first-time homebuyer, you should try to find down payment assistance or first time home buyer grants. You can search the HUD website to find local state programs and grants. If you go to your local city or county website, they should have all first-time homebuyer programs listed.

Why is 100% financing not a standard offering?

Not everyone can come up with a 20% down payment. And that’s where private mortgage insurance (PMI) comes in. For most loans with a low down payment that is less than 20%, it is a requirement that the borrower has to pay a monthly PMI premium.

Such that in the event of a foreclosure, the insurance company providing the PMI pays the lender. For most conventional loans, the borrower may request for discontinuation of PMI premium payments when the outstanding loan balance drops to 78% of the home’s original value.

Even with PMI, lenders typically do not offer full 100% financing. The insurance companies have a limit to the risk they can assume. To offer 100% financing, lenders typically have to look towards the government to provide a guarantee. This is why the most common 100% financing mortgages—the VA-backed and USDA Guaranteed loans—are government-backed loans.

No Down Payment Mortgage Loans and Low Down Alternatives

The mortgage meltdown in 2008 had a profound effect on the financing requirements for most lenders. Prior to the downturn, zero-down mortgages were commonly available from multiple sources. Today, the variation may be lower, but 100% financing loans are still available.

And while the selection of no down payment mortgages is dominated by government-backed home loans, conventional mortgages are rising to the occasion with attractive low down payment requirements.