Zero Down Payment Mortgage Available

In an era of the credit crunch a common belief among borrowers is that they can no longer get zero down payment loans. While the free wheeling days of yesterday is certainly past us, there is still one loan program available that has a zero down feature. This zero down mortgage is available with a USDA Guarantee Rural Housing Mortgage.

This loan is not available to everyone and there are restrictions, but there are plenty of borrowers out there for whom this can be a great fit. The USDA Guarantee Rural Housing program is available to homebuyers purchasing a home in a rural area. The area must be defined as rural by USDA Rural Development and eligible properties cannot produce income (so no investment properties allowed). To determine if a property is within an approved area the USDA website has tools to help you identify them. So, if you have a property in mind, go ahead and enter it in and see if the property is located in an eligible area.

There are many advantages to the program. Such as:

  1. 100% financing for first-time and repeating homebuyers.
  2. No limit on seller contributions of gift funds from acceptable family, friends or non-profit organization.
  3. No Maximum loan amount.
  4. 30 year Fixed Rate.
  5. No monthly mortgage insurance.
  6. No reserve requirement (you do not need to show you have sufficient money to cover a mortgage payment for 2-3 months)

Keep in mind that even if you do meet the property requirement there are other requirements specific to your situation. So for borrowers to qualify they must be purchasing a primary residence, not own any other real estate and must meet income limitation requirements. Additionally, income from all household members over the age of 18 must be counted in household income. This household income may not exceed the moderate income levels set by the USDA for the area. Again the USDA website has the details to see if you meet this income limitation.

The USDA Guarantee Rural Housing program has become to mortgage of choice for most borrowers who qualify for the program and want to put a minimal amount down. Arizona homebuyers purchasing a home in the towns of Maricopa, Buckeye, Queen Creek and many other communities will find this mortgage to be a very attractive option.

Using the $8,000 Tax Credit to Cover FHA Loan Costs

Recently the FHA revised some of its guidelines and announced that they would allow first time home buyers to apply the $8,000 tax credit to offset the costs associated with obtaining FHA mortgage financing.

Heather Barr over at The Phoenix Agent blog has a great blog post detailing all aspects of this provision. For one thing you can use the $8,000 to cover closing costs, include additional cash down payment and any mortgage interest rate buy-down costs. Notice you can’t use these funds to cover the required 3.5% down payment. Read Heather’s post for additional details.

Here is a portion of the HUD announcement for those interested:

WASHINGTON – Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan today announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration’s new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that today’s action will help stabilize the nation’s housing market by stimulating home sales across the country.

Interest Credit Affects Your First Mortgage Payment Due Date

A common question people ask me when I’m working on a loan is the date of their first payment. The way mortgage payments work, you make your payment at the end of the month. This is different than rent, where you pay at the beginning of the month.  Meaning, you pre-pay for the month to come when you pay rent, but when you make your mortgage payment you’re paying for the month that just passed. The difference is that you’re paying interest on money you’ve borrowed when you make your mortgage payment. Naturally you don’t owe the payment until the money has been used and interest is due. This is oftentimes a very confusing concept for borrowers but is important to understand as it affects the date of your first mortgage payment.

You have pre-paid interest as part of your closing costs at the close of escrow. This is essentially your daily interest rated times the number of days remaining in the month. So, if you close in the 16th of the month (in a month with 30 days), you would have 15 days of interest due at the end of that month. Instead of asking you to make a payment that month, lenders will just ask you to pay upfront at close. This results in your first mortgage payment being due the 1st of the following month. So, if you closed on September 16th, your first payment would be due November 1st.

However, there is a feature called interest credit – where if you close within the first seven days (varies from lender to lender), instead of charging pre-paid interest the lender will give you an interest credit back for the number of days in the month. So, if you closed on the 4th – you would get four days of interest credit back at close. This of course results in you having to make your first mortgage payment at the end of the month. So, if you closed on September 4th and you received four days interest credit, your first payment would be due October 1st. A whole month earlier than in the prior example.

Be aware that you do have a choice on whether or not to accept an interest credit – but you need to mention this to the bank. Either way you’re paying – whether it is at close or in the form of a mortgage payment, but you need to be prepared. Purchasing a home entails lots of charges, so its easy to run into a cash flow problem if you are closing at the beginning of the month and your first payment is in a few weeks. The first payment is not one you want to miss – not that you want to miss any payment at all.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.