Can You Get a Mortgage without a Down Payment?

It is nearly impossible to get a mortgage without a down payment even if you have very high credit. Low or no down payment mortgages were more available before the mortgage meltdown of 2007. Since then, mortgage reform left more lenders wanting 10% to 20% down before even considering a loan. If you do not have the cash to put that much of a down payment on the line, you may consider the following options.

Take a Second Loan

One popular though risky option borrowers consider is taking a personal loan in the sum needed for a down payment. This can be tricky because the two lenders will be wary you are taking on too much debt. However, if your income is high enough to support payments on each, you may be able to pursue this option. The risk is higher because you will have to keep both loans in good standing in order to stay in your home. Even if you did not use collateral to attain the down payment loan, defaulting on the loan could cause the lender to withdraw the funds, and your mortgage lender would then do the same.

Seek FHA Options

The Federal Housing Authority offers some assistance in gaining low down payment loans. While the FHA does not directly make the loans, the agency does offer to guarantee the loans if they are distributed by qualified lenders. With this guarantee, the lender is taking on less risk and can offer a lower down payment option. You will still need to provide at least 3% down in order to secure an FHA mortgage at a good interest rate. 

Take an Interest Only Mortgage

One of the main reasons people do not want to put too much down on a house is because they will need the cash in the coming months. That cash is used to pay monthly mortgage costs as well as cover the cost of moving into the home. An interest only loan is not an ideal option; you do not build up equity in the property. However, by choosing this option, you will have lower monthly payments, even on a large mortgage. You can then spend more of your savings on a down payment. If you elect an interest only loan, you should discuss ways to gain equity in the home, such as paying down some of your mortgage at the end of each year. 

Rent for Longer

Ultimately, if you cannot afford a down payment, you probably cannot afford to own a home. Saving for a down payment is the single greatest cost of ownership. It is also the expense that provides you the most financial protection because it gives you immediate equity in a property of value. Aiming for the highest down payment possible is a better strategy than aiming no down payment. Saving cash by opting to rent for a few more months or years can provide you with more stability in the long run. It will also provide you with more options in the short run when you look at properties.