Do I need a down payment?

This is a question that a lot of home buyers have, especially first time home buyers. Fortunately, if you can't afford to make a down payment on a home, there are still options that allow you to get into a home. It is even possible for you to buy a home with little to no money out of your pocket at all.

In some cases a lender may allow gift funds to be used in lieu of a down payment. If you have a friend, or family member that is willing to "gift" a portion of the down payment for you, the lenders only requirement is that it must really be a gift and not a loan that you are required to pay back.

This question will heavily depend upon your credit scores, credit history, debt to income ratios and your mortgage loan application package as a whole. In order to qualify for no down payment you have to have reasonably decent credit, a stable 2 year job history, and a debt to income ratio that is acceptable to the lender's guidelines. Zero down loans are becoming increasingly popular and they are helping more and more Americans each year to realize their dream of homeownership.

There are many programs available for 100% financing for borrowers who have little or no liquid assets for a down payment and/or closing costs. There are also options available to help borrowers who don't have the money for closing costs. You can try and negotiate for a seller assist, where the seller pays for a portion of your closing costs usually up to 6% of the purchase price. Another alternative is to use a 103% program, this is when you finance 103% of the purchase price and the additional 3% is used to help pay for closing costs.

One of the most popular ways to acheive buying a home with no down payment is to structure a piggyback mortgage. A piggyback mortgage is a subordinate mortgage of 20% of the purchase price, in addition to the 80% first mortgage. Piggyback mortgage also helps home buyers with no downpayment to avoid spending on private mortgage insurance (PMI).

FHA can be a good alternative and allows for Down Payment Assistance. FHA loans are paritially insured by the Federal Housing Administration and will allow for some damaged credit. FHA will also allow someone to buy a home with no credit score as long as alternative credit references are available. Homeowners are generally required to pay Mortgage Insurance on an FHA loan, however the monthly premium is significantly less than on a Conventional loan.

Down payments are usually discussed as a percentage of the sale price of the home, such as 20% down. On a $200,000 home, 20% would be $40,000. In addition to the down payment, there are additional closing costs which include various fees and prepaid amounts. Even if you have 0% down you usually have to pay closing cost, which are typically between 2% and 5% of the sales price of the house. Sometimes your real estate agent can negotiate to have the seller pay a certain percentage toward closing cost. Or, your mortgage broker may pay a certain percentage toward closing costs in exchange for you agreeing to a slightly higher rate loan.

» DISCLAIMER: The information contained in this article on 'Do I need a down payment?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.