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The biggest hurdle to home ownership is coming up with the cash for the down payment. This is traditionally considered by lenders as the commitment by you that promises repayment of the loan. Often, this down payment must be 20% of the value of your home.
The catch, and there always is one, comes with the interest rate itself. No money down means a slightly higher rate (about a half a percentage point) than conventional mortgages. It also requires exceptional credit.
The exceptional credit part is important. You must fix what you have now, if you think that this might what you were looking for. You might be fully able to make the house payments, but unable to come up with a sizable down.
Some companies have developed a 80/20 program that works like this. You buy your home conventionally for 80% of the loan, while the remaining 20%, the down payment is financed through a second mortgage at a slightly higher rate. With the closing costs added to the total, the borrow is actually borrowing 103% of the costs, and thus avoiding the private mortgage insurance.
PMI, or Private Mortgage Insurance, is added to the mortgage when less than 20% is put down on the home, and is, by law, removed when you have achieved a 22% equity stake in your home. If you have it, it pays to check to see whether your home's value has risen enough to make it unnecessary. An independent appraisal of the current worth should be enough to get your PMI eliminated from your payment. It may be $100 well spent. Get with your lender and ask how this is done.
Remember, banks and lenders do not want your house so this type of loan will be for those at the upper end of the BlueCollarDollar wage scale, have incredible credit, and possibly some investments that can supply collateral (this is something that the bank can seize and sell if you prove to be unworthy of their business and renege on your end of the deal).
This is still very much a niche kind of product, and should not be your first choice. Housing doesn't usually take sever downturns, but that is not saying that it will never happen. Get you financial life in line, and who knows what can happen. Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including:
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