No Money Down loan programs

What about no money down loan programs? Yes, I know we’ve all seen the commercials on TV…”Buy a house with 0 Down!”

There are these types of programs available but be prepared to pay higher interest and loan fees. How much higher probably depends on the lender and your credit score.

Even with no money down programs, you will most likely still need to come up with some money for closing costs and any cash reserves required by the lender.

What are closing costs?

Closing costs consist of lender-related costs as well as third-party costs. Examples of lender-related costs are application fee, processing fee, underwriting fee, document preparation fee, loan points and loan origination fees.

Third party fees include appraisal fee, credit report fee, escrow fee, title insurance, recording and filing fees, notary fee and transfer taxes.

Some lenders may require cash reserves which are also known as escrow accounts or impound accounts. The homebuyer could be required to pay 2 to 6 months’ worth of the property taxes and homeowners insurance to the impound account at closing.

These closing costs generally come up to about 2 to 5% of the loan amount. For a $250,000 loan, the homebuyer can expect to pay anywhere between $5,000 to $12,500 in closing costs.

It is also important to remember that in addition to the down payment, the homebuyer must be able to afford the monthly mortgage payment. The lower the down payment, the higher the loan amount and the higher the mortgage payment (or homebuyer’s debt).

Lenders approve and deny loans based on this debt to income ratio. Generally, lenders prefer that the monthly housing costs be not more than 30% of the homebuyer’s monthly total income. Housing cost is the sum of the principal, interest, property taxes and insurance. If you call up enough lenders, you will probably find aggressive ones that will allow the ratio to be higher.

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Word of Caution: The information stated on this website is for general information purposes only. The subject of taxation is complicated and should be discussed with your legal tax counsel. We are not tax experts nor do we claim to be. The tax laws change frequently and must be referred to prior to entering into any sales contract. Please consult with your tax specialist before entering into any binding sales contract.