Guest Author - Katie Murphy

According to the National Association of Realtors, 42 percent of first-time home buyers paid zero down in 2004.

Saving a down-payment to purchase a home can be a monumental challenge and borrowers are increasingly turning to 100-percent financing. Many people can not come up with the down payment needed for a traditional home loan. Among others, young professionals are finding it a challenge to save the down-payment. Individuals just getting out of college may find a high-paying job and have good credit, but have not had enough time to save a significant down-payment.

Often it makes sense to buy a home now, even before you have money saved, in order to take advantage of tax deductions and to own a home before the prices go even higher.

If you don’t have money saved for a down-payment, don’t despair. Following are tips to purchase a home with little or no money down.

PIGGYBACK LOANS

Plenty of mortgage programs allow borrowers to buy houses with little or no money down, but they usually require private mortgage insurance, or PMI. Mortgage insurance protects the lender from the costs of foreclosing on a house when the borrower falls too far behind on the loan payments. Generally, mortgage insurance is required when the loan amount is for more than 80 percent of the home's price. PMI can cost $45-$65 per $100,000 borrowed per month and that can add up.

You can purchase a home with no money down by securing 100% financing – the first for 80 percent of the purchase price and the second for the final 20 percent. This is referred to as a “piggyback loan”. An advantage for the borrower is the elimination of PMI or private mortgage insurance.
Mortgage-funding organizations Fannie Mae (fanniemae.com) and Freddie Mac (freddiemac.com) have 100 percent financing programs available. The two organizations can steer you to financial institutions that offer these loan products. However, if you pay nothing down and no closing fees, your interest rate will be higher, and you'll pay interest on the total price plus the closing costs.

LEASE/OPTION

Another way to buy a home with no money down is to rent a property with an option to buy. Under the terms of the lease/option agreement, the buyer and seller negotiate a regular payment. This agreement allows the lessor to purchase the property at a predetermined price during the term of the lease. Under this agreement, you may negotiate a portion of the rental payments to be credited toward the purchase price.

NEGOTIATE THE DOWN PAYMENT

If a property has been on the market for a long time or is being advertised as a must sell, the seller may be willing to negotiate. In a buyer’s market, homes take longer to sell and may sit on the market for long periods of times, even over a year or nearing two years. Ask the seller for help and he or she may jump at the chance.

For example, a seller may accept the down-payment in the form of monthly payments rather than in a lump sum or as a balloon payment at the end of the year. The seller may pay for the down payment or give credit at closing for the buyer's down payment in order to sell the property faster.

GOVERNMENT GRANTS

Check out the Department of Housing and Urban Development Web site (hud.gov) for a list of funds available from state and local governments and nonprofit organizations. Contact your state's Department of Housing and Community Development to ask about grants.

Buying a home is a major purchase and commitment. There are many ways to buy a home with little or no money down, but you need to be knowledgeable and must work with people who understand your situation. You will need to develop a plan. Find a trusted Realtor® to work with and he or she will guide you to the best resources for you. The process may take a little time and work, but it will be well worth it. You will be on your way to home ownership and all the advantages that come with it.