No Down Payment Is a Leg Up for Buyers

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If you have dreamed of buying your own home but don't have a down payment yet, start house hunting. Lenders are offering no-money-down options that help cash-strapped buyers qualify for new homes.

Zero-down financing, touted for years by auto dealers to lure new-car buyers, is revolutionizing home buying.

Homeowners no longer need 10 percent to 20 percent down to buy a home. Some packages offer people a chance to buy a home while spending as little as $500.

"The fact you can get into a house and not have to pay a down payment is a real plus for homeowners," says Stephanie Simon, vice president of emerging markets for Wells Fargo Home Mortgage. "These programs will give more people access to homeownership."

It's an idea used by auto and furniture dealers to capture new customers, and it's aimed primarily at first-time buyers and renters with limited savings. Move-up buyers also are taking advantage of the programs as a way to purchase bigger houses without using all their savings, lenders say.

"With the increase in home prices, it has given people that just couldn't do it an opportunity at homeownership," says George Nash, district manager for First Horizon Home Loans in Bethesda.

The packages account for about 15 percent of the company's loan business, he says.

The zero-down or no-down-payment mortgages were introduced about five years ago and are offered locally by more than 30 area lenders. To qualify, buyers must have an established work history and good credit to meet underwriting guidelines. Some applicants with credit problems may be considered on a case-by-case basis, but generally, anyone with a bankruptcy filing or a foreclosure probably will not qualify, lenders say.

The mortgages apply to all types of residential sales, including single-family homes, town houses and condominiums.

Co-op sales are not allowed under underwriting rules, lenders say.

The program generally is limited to conforming loans of $359,650 or less.

Some lenders in some states limit loans to $480,000 and roll closing costs into the mortgage. Those loans, known as 103 mortgages, cover 100 percent of the value of the home and 3 percent of closing costs.

"You need to work with a loan officer to structure the loan that is best for you," Ms. Simon says. "So many consumers have so many different financing needs. There are a lot of options."

No-money-down mortgages, which finance 100 percent of the cost of a new home, work like a traditional mortgage.

Buyers can choose from fixed loans of 15- to 30-year terms, or three- to 10-year adjustable-rate mortgages.

Historically, buyers have been advised to put up 20 percent when buying a new home. That standard meets the equity requirement to avoid paying private mortgage insurance (PMI). …