Zero Down Mortgages Are Not A Fairytale

Although there are not as many options for zero down mortgage as there once was. There are still a couple of them to choose from. In fact one of these zero down home loans is better than nothing down.

The United States Department of Agriculture Rural Development loan, or USDA RD, is not actually a zero down mortgage. In fact it is actually 102% financing. And if you think that is cool, it gets even better.

The reason the USDA loan is 102% is because the USDA charges a 2% funding fee. They allow you to finance this fee into the loan. There are a couple of reasons they do this.

First there is no mortgage insurance with this loan. Mortgage insurance is typically required to help defray costs associated with losses when a foreclosure happens.  Because there is no mortgage insurance it saves you anywhere from $50 to $100 in your monthly mortgage payment.

Because there is no mortgage insurance the funding fee helps offset losses associated with foreclosures as well as helps with administration costs of this loan.

That 2% funding fee is well worth paying. On a $100,000 loan you would pay a $2,000 funding fee. Based on that loan amount you could expect to pay $45 or more on mortgage insurance. But you’ll actually recoup that funding fee cost in less than 4 years because you are not paying that mortgage insurance.

The USDA is one of the more unique zero down mortgages because you can actually finance in your closing costs and or repair costs into your loan. To take advantage of this feature the home must appraise for more than what you are purchasing it for. The maximum amount you can borrow above and beyond the purchase price is $10,000.

There are income and geographical limitations with this type of zero down loan. It is highly suggested that you speak with a mortgage professional in your area about these zero down mortgages to find out more about these limitations and how they affect you.

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