Ways to change your life

When Janette Jones of Gwynn Oak, Maryland, got ready to buy a town house last year, she discovered that a down payment and closing fees would cost nearly $10,000, taking a significant chunk of her savings. But because her credit score was above 620, she qualified for a loan that covered not only her down payment but her closing costs as well. "It was more important for me to keep the cushion I had in the bank for whatever happened after I moved into the home," she says. "The stove could have gone out the next day, or my car could have broken down two weeks later." Jones is among the 42 percent of first-time home buyers who paid zero down in 2004, according to the National Association of Realtors. Until recently the standard down payment was 20 percent of the purchase price, and the highest barrier to home ownership was the lack of cash. Then along came programs that required as little as 3 percent down. And today's zero-down programs are flinging open the doors to home ownership even wider. They're so popular "because many people with decent credit just don't have the money they need for a down payment," says Marcia Griffin, president and founder of Washington, D.C.-based HomeFree-USA, a nonprofit home-ownership organization. Consider these six options and how each might work for you:

1. GOOD CREDIT Many lenders offer 100 percent financing to those with good credit scores, typically above 580. The financing often comes in the form of two loans: one with a low interest rate for 80 percent of the cost and another with a higher interest rate for the other 20 percent. If your credit score is 620 or higher, you might qualify for loans that cover 103 percent, 104 percent or 107 percent of the sale price, with the additional funds going to closing costs. Mortgage-funding organizations Fannie Mae (fanniemae.com) and Freddie Mac (freddiemac.com) have 100 percent financing programs available. For instance, Fannie Mae's Flexible 100 plan covers the down payment, while you pay as little as $500 toward closing costs. 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. "If you bring $2,000 or $3,000 to the table in the beginning, you would have thousands of dollars less to pay on the back end," says Sharron Murphy-Williams, executive director of the Ph6be Foundation, a financial-literacy organization in Cleveland.
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2. GOVERNMENT GRANTS In 2004 76 percent of Whites owned their own home, compared with only 49 percent of Blacks. As part of a plan to eliminate this home-ownership gap, federal, state and local governments issue down-payment grants to mortgage applicants with low incomes. Programs like the American Dream Downpayment initiative (ADDI) provide down-payment, closing costs and rehabilitation assistance to income-eligible home buyers. 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. "Many states have grants they don't use because people don't know they exist, and the government isn't really marketing them," Griffin notes.

3. FIXER-UPPER FUNDS If you're eyeing a property in need of repair, especially one in a neighborhood targeted for community revitalization, you may qualify for government programs offering fixer-upper loans. While properties that fall under such programs may need major renovations, a fixer-upper grant usually covers all the costs. Again, check with your state's Department of Housing and Community Development.

4. GIFT PROGRAMS Down-payment-assistance gift programs provide home buyers with between 3 and 6 percent of the sale price. While you don't have to pay this money back, you must buy a home that's part of the gift program because the funds come from sellers' donations. A number of nonprofit organizations offer down-payment assistance, including the Nehemiah Corp. of America (nehemiahcorp.org), AmeriDream, Inc. (ameridream.org), and Neighborhood Gold (neighborhoodgold.corn). You can also find a list of other down-payment-assistance organizations on the Home Gift Providers Association Web site (downpaymentalliance.org). These programs generally have no income requirements, but applicants must be eligible for a loan from a participating lender.

5. SELLER ASSISTANCE If the seller is in a rush to unload her home, you may be able to negotiate with her to pick up some of your costs. "Many times when you buy a home, the seller will agree to give you 3 to 6 percent to cover your closing costs," says David C. Harty, vice-president for legal affairs, Residential Home Loan Centers in Laurel, Maryland. If the seller is unable to find other buyers, you might also set up a "lease purchase" agreement in which you sign a contract to buy a home at a set price in a year or two, while living in it and paying rent. The seller generally will allow some of the rent money to go toward the purchase, which can eliminate the need for a down payment when it's time to close on the sale. You also benefit if the home's value rises because the purchase price is locked in.
6. MILITARY SERVICE If you're a veteran or currently in the military, you may qualify for a no-down-payment loan through the Department of Veterans Affairs. Check the department's Web site at homeloans.va.gov for a list of VA-approved lenders.

ZERO-DOWN CHECKLIST

Many no-money-down programs have hidden costs and risks, so keep these tips in mind before doing a deal:

GET INFORMED. For first-time home buyers, "It doesn't matter how much you know, you should get into a home-buying class," advises Sharron Murphy-Williams of the Phebe Foundation. "Then you can go to the bank equipped to ask intelligent questions about zero-down-payment loans."

LEARN THE COSTS. Ask your lender how much you'll be paying over the course of the mortgage with and without a down payment, then decide whether a fixed-rate or adjustable-rate mortgage (ARM) best fits your budget. Also evaluate gift programs; sellers contribute a portion of the down payment, so there's a chance the price will be inflated to cover that loss.
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FIND A SUPPORTING CAST. Have an attorney or a real-estate professional look over all paperwork, because predatory lending is prevalent with many no-money-down deals, Murphy-Williams cautions.

ASSESS THE NEIGHBORHOOD. "Make sure you're in an area that's appreciating and not declining," advises David C. Harty of Residential Home Loan Centers. A decline in market value means you could be stuck owing more than your home is worth.

MAINTAIN A CASH CUSHION. Even if you can get a home without cash, don't buy unless you have money in the bank. Harty notes, "Individuals who say they don't have $350 for an appraisal might not be the best candidate for a 107-percent loan."--T.E.H.