“Zero Down” Is Still Alive and Well



Loans are harder and harder to get these days. The problem is that lenders are afraid to lend money. They were fast and loose with other peoples money in the easy loan days and now are very careful. Sometimes they are so careful that a qualified buyer can’t get into a home.

But the interest rates for the people that do qualify are fantastic. They have dipped into the high 3% range for 30 year fixed loans and are currently in the low 4% ranges. Obviously, interest rates can’t get much lower than they are now. You can’t go lower than zero and we are only 4 points above it now.

Speaking of zero…zero-down mortgages are still alive. They are harder to get and justifiably so. Easy zero-down loans were what got a lot of people in trouble. People were getting 80-20 loans right and left. They would get a first mortgage for 80% of the purchase price and a second mortgage for 20%, thereby avoiding the cost of mortgage insurance and putting zero down in the process. Of course the companies that gave those second mortgages are all bankrupt now…as are a lot of the home purchasers.

So, zero-down mortgages must be entered into carefully.

If you decide you want to go zero-down there are two possibilities. One is for veterans only…a VA loan. The other is for lower income people with good credit…a rural-development loan.

VA loans are for veterans. The Veteran Administration backs the loan but you get it through any qualified mortgage company. Almost all the major companies can help you get a VA loan.

Rural Development loans come in two types. A Guaranteed Rural Development loan is for moderately low income people through any of the major mortgage companies in Alaska. You can’t get an RD loan in Anchorage, it isn’t rural. But the Mat-Su Valley is all considered rural and qualifies for an RD loan. Then there is the Direct RD loan that can only be acquired through the Rural Development office in Palmer. This is a subsidized loan for very low income people with decent credit. Two weeks ago I helped a lady buy a nice home in Palmer with a direct RD loan…her interest rate was 1%. Yes you heard that right…1%.

In addition to zero-down. If you negotiate your deal right you can also have zero closing costs. If you have the seller pay your closing costs you are often able to purchase the home with absolutely no money, or almost no money.

These days, with sliding home prices, sometimes the seller cannot afford to pay your closing costs even if he wants to. Bryan Scoresby of Wells Fargo reminded me of another option to get your closing costs paid…have your lender pay them. In exchange for a slightly higher interest rate, your lender can pay those closing costs for you.

There is a downside to all this zero-down stuff. You start out with no equity in your home so that you have less of a cushion if the value of your home drops and you have to sell. In fact, if you go the triple zero down route, (no down, no closing costs, and finance your funding fee), you will start out with a negative equity.

There are a few good reasons to go this route…but only a few, so be careful.

Photo from The Wisdom Journal