Opinions on zero down/no pmi mortgage option? (loan, interest rate, credit card)
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My wife and I have very good credit, both above 750 last I checked, her's might even be near 800. We are just starting the process of looking for a new house and I'm investigating our mortgage options. My biggest concern right now is we don't have much of a down payment, and we are NOT 1st time home buyers. We sold our home after only a short time and while we came out ahead we didn't get much of a profit, hence the low available down payment currently. We are also both teachers so we are mid-income at best and putting money into savings is a very slow process. We are currently living rent-free with her parents but that is only a limited time deal, we need to have a house by this time next year at the latest. Basically, the standard 20% down option isn't realistic for us.
My question is about zero down loan options, are they worth it at all or should I avoid them? I'm a member of Nasa Fed. Cred. Union and could apply for a zero down/no PMI mortgage but the starting interest rate would be 4.875%, which from what I can see is about a 1% higher rate than many others.
Any advice or extra information would be welcome, we are both pretty new to this and learning as we go.
4.875% is an amazing rate, regardless of down payment, and really isn't a point above current prevailing rates for "traditional" 20% down payment borrowers. If you can do a zero down-no pmi mortgage at that rate, i'd jump all over it - provided you are ok with the actual payment.
But, realize that you would still be getting an FHA loan, with monthly FHA Mortgage Insurance. Calculate that by taking your actual loan amount, multiplied by .00085 = monthly mortgage insurance added to your payment. For the entire life of the loan. This can effectively make your FHA payment look like a mortgage loan at a way higher rate than that which is used to calculate the base payment.
Other zero down options include Grant loans, wherein you get a "grant" for the down payment. These have slightly higher rates AND mortgage insurance as well, depending on what kind of loan you do. Here is an example: Housing Finance | National Homebuyers Fund, Inc. | NHF
Finally, depending on where you are shopping, you could qualify for a USDA purchase loan, which is a true zero-down mortgage, with a monthly mortgage insurance factor about half of what FHA runs. Use .00004 X Loan Amount. Rates running in the low 4%s on these at the moment. Here is USDA's eligibility site: http://eligibility.sc.egov.usda.gov/...lcomeAction.do
So, I guess the bottom line here is that USDA and FHA and Grant loans can all get you close to zero down, but the Mortgage Insurance amounts give you resultant payments that look substantially higher than the one you quote from your Credit Union. Unless you find a Home Run on the HUD Homestore site.
***I am not affiliated with any of the websites listed in this post.
..... We are also both teachers so we are mid-income at best and putting money into savings is a very slow process. We are currently living rent-free with her parents but that is only a limited time deal, we need to have a house by this time next year at the latest. Basically, the standard 20% down option isn't realistic for us.....
Pfhtex gave good advice trying to get into a loan with little or no money down. My Point - the more money you put up front gets your into a smaller loan with a lower payment. Right now you should be socking away into your savings.
If you are having trouble putting money into savings while living rent-free for the foreseeable future.
I do not think your ready to take on a new mortgage payment.
Thank you for all the feedback. We decided to go ahead and apply for it, it looks like our apr will be right at 5.0% if we go with zero down. I had reseached both the FHA and the USDA options, we don't qualify for the USDA one and the FHA one will be a last resort if this first one falls through.
We are also both teachers so we are mid-income at best and putting money into savings is a very slow process. We are currently living rent-free with her parents
Dual income, no kids, rent free and still not putting away mad money into savings? You two sound like have some serious budgeting issues. I suggest you look up a local church or similar to see if they are having a Dave Ramsey Financial peace class that will teach you budgeting.
I dont think your ready to buy a home. Maybe you should rent.
Dual income, no kids, rent free and still not putting away mad money into savings? You two sound like have some serious budgeting issues. I suggest you look up a local church or similar to see if they are having a Dave Ramsey Financial peace class that will teach you budgeting.
I dont think your ready to buy a home. Maybe you should rent.
I agree to a certain extent only because I don't fully know your situation and location, however if you can barely save living for free how do you expect to pay for a mortgage and all other costs that are involved with home ownership? Not trying to attack you or anything, but asking a serious question.
I can't say this is the OP's response, but over decades of lending, the almost universal response to the question "if you can't afford to save now, how are you going to make the payment," is, "lifestyle change." That always raises concern because the buyers earnestly believe they will stop eating out and stop with the weekend trips. And, they do. At first. And if income doesn't increase soon, the credit cards get jacked up. If income doesn't keep pace, I can almost predict a call about the possibilities of a home equity loan. That's when they are hit between the eyes they detoured from their lifestyle plan. Or, in some cases, they really did go thru with the lifestyle change, but an emergency came along and they had no choice but to hit the credit cards.
I urge the OP to not necessarily answer here in a public forum how they plan to do this, but actually sit down with a budget. Have your bank card records at hand. The more you deviate from your current lifestyle, the chances are high you will become very unhappy in the home.
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