No Down Payment Investing
No Down Payment loans used to be pretty difficult to come by, only available from special government agencies, such as VA loans. Today, though, in response to increased market value and inability of first time homebuyers to put down a full 20% of the selling cost, many mortgage companies have started offering a variety of no down payment loans. This is a great way for new homebuyers to become involved in the business of purchasing a home, but can also be a great way for investors to purchase property as well. The real estate investment business was at one time thought to be only for those who had a great deal of money available to put down on homes to purchase and to repair, but with no down payment loan options available, nearly anyone can turn real estate investment dreams into a reality.
There are several different types of no down payment loans available, but some loans are better suited for investors than others. Finding the right loan for your investment or home buying needs can make the difference between whether you decide to purchase a home or not. Here are a few popular no down payment loans to consider:
The VA loan was one of the first no down payment loans originally offered to WWII veterans to help them get on their feet after the war. From here, the VA loan has turned into a loan available to all current active duty, reserve or retired military personnel who are in the process of searching for a home. While many military personnel use the VA loan as their first home loan, the loan can be used at any time. Stipulations that go along with the VA loan, though, will require a VA processing fee, which is usually a small percentage of the loan amount, although the VA loan will not require a PMI (primary mortgage insurance), which often goes along with a no down payment loan. Another stipulation is that the mortgage lender will require the veteran or current active duty personnel to prove their time in the service, either through a statement of service or through current military orders. If you are a veteran, this may require going to the branch of service and asking for this paperwork, although many lenders will take discharge papers as proof. Another factor to keep in mind with a VA loan is that only one VA loan is available per veteran at a time. This means if you plan on using the VA loan for investment purposes, you will only be able to use this loan for one of your properties. However, a VA loan might be a great option for someone looking to flip houses, since many investors only flip one house at a time.
Often the loan of choice for civilian first time homebuyers, the FHA loans were started by the Federal Government in an effort to help first time homebuyers secure a first mortgage and a first home. FHA mortgage lenders are set up specifically to help first time homebuyers who have little down payment cash, bad credit history or no credit history to become involved in the home buying process. One note to keep in mind with FHA no down payment loans is that they are not completely down payment free, as they will require approximately 3% of the loan cost, although this is much easier to come by than 20%. As well, FHA lenders will be more flexible about credit history, but may require past due bills or potentially bad credit issues to be taken care of before entering into a loan agreement with the buyer. Remember that the FHA loans will have a cap on the maximum amount of the loan, depending on the area of living. For instance, in high cost areas, such as Washington D.C., the limit for one family homes is $239, 250 although in low cost areas the limit will be much less than this. Before deciding on an FHA loan, you will need to first decide how much the home will cost that you are interested in purchasing or interested in investing in. Keep in mind that FHA loans may also require PMI, primary mortgage insurance, although quite a few lenders can offer no PMI or very low rates for PMI.
80/20 Loans
A creative way that financial lenders have opened up no down payment loans to more first time homebuyers or investors without cash on hand is through the 80/20 loans. These loans are also referred to as combined financing or piggyback loans because they are often used for home improvement and refinancing as well. To avoid paying PMI, primary mortgage insurance, which can often be costly to new homebuyers, a second trust of 20% of the loan value is added together with a first trust of 80% of the loan value. The first trust is set at 80% of the loan value because this will eliminate the need for PMI, which automatically comes out if the homebuyer requests 100% of the loan cost and cannot put any money down. The second trust will be the remaining 20% of the loan cost and will be used to pay the “down payment” on the home at or before closing. It is very important to discuss the details of 80/20 no down payment loans with your own mortgage lender because some will require 3% closing cost fees, while others will be willing to wrap up even the closing cost fees in the second trust of the loan. This is a great program to use to begin investing in real estate without having to put your own money down on the line and may even allow for extra money to be taken on the second loan as a way to help pay for home repairs, if you plan to flip the house. The entire payment will be combined so that you do not have to pay two different loans, but just one loan, and many 80/20 loans will allow for up to $500,000 on the total loan value. It is important that you check with a mortgage lender on any special fees that may be charged for using 80/20 combination loans, as they will vary from lender to lender.
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