 Buying
a home with no down payment
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 Dear
Dr. Don,
If I have very little money for a down payment for a new home, is
there anything I can do to still purchase a home. I am almost debt
free and my credit is very good. My salary is not real high, so
it would take me several more years to save a down payment. Are
there loans that don't require a down payment, or are there other
alternatives available to someone like me? Thanks.
-- Noreen Nescient
 Dear
Noreen,
Your local housing authority can tell you if
you qualify for a first-time home buyers program. The Department
of Housing and Urban Development's (HUD) Web
site can point you to the agency in your area that offers these
programs, or try the National
Council of State Housing Agencies (NCSHA) directory.
HUD also oversees the Federal Housing Administration
(FHA) program. FHA loans require a minimum down payment of 3 percent
of the purchase price. A HUD guide, "Let
FHA loans help you," explains FHA loans in greater detail.
Using conventional mortgage financing, you could attempt
to qualify for a piggyback loan where you borrow 80 percent of the
home's purchase price with a first mortgage and borrow the balance
with a second mortgage. The piggyback approach avoids the first
mortgage lender requiring private mortgage insurance (PMI), but
the trade-off is that the second mortgage is going to have a substantially
higher interest rate -- especially if you aren't putting any money
down. It's more common to see a piggyback mortgage as an 80-10-10
mortgage where the home buyer is making a down payment, but no-equity
piggyback mortgages do exist.
Bankrate's home
affordability calculator can help you determine how much house
you can afford with your income and current financial obligations.
In recent years the annual appreciation in home prices
widely outpaced the potential returns on savings, so taking a few
years to save up the down payment on a house became an uphill battle.
It's possible that the real estate market in your area will cool
off enough that the interest earnings on your savings can outpace
the annual appreciation in home prices. Still, the expectation is
for mortgage interest rates to continue to head higher. If you can
afford the payments, including home maintenance, and you can find
a loan program you're comfortable with, you don't have to have a
down payment to buy a home.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "Financing
a home," "Saving & investing" or "Money."
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