One advantage to buying a home using a very small down payment is that borrowers can really leverage their invested monies. Buyers who put down $10,000 to purchase a $100,000 home that appreciates $5,000 per year would realize a 50% annual rate of return on their investment when they sell their property. If they were to purchase the same property with just $500, their annual return on investment would be 500% instead!

The FHA loan is a fantastic mortgage option for homebuyers with very small down payments. Qualified FHA borrowers can get up to 97% financing to purchase homes if the loan amounts do not exceed prescribed limits. These limits, however, are extremely accommodating, especially in high-cost areas in and around major cities.

Borrowers with badly bruised credit, those who need full 100% financing, and those requiring very large or “jumbo” mortgages, may not be able to use the FHA. However, there are plenty of lenders who have designed mortgage programs to fill these niches.

For those home buyers with reasonable or good credit, some lenders will grant loans (or loan combinations) totaling 100% of a property’s value without deeply scrutinizing the borrowers’ credit history or worrying about the loan size. In most cases, sellers may cover the closing costs, and borrowers are often not required to maintain property tax escrow accounts.

Zero-down lenders usually check to ensure that the subject property is worth at least the amount of the loan. So, you should count on adding a little extra time and expense for a “review appraisal” prior to final loan approval.

You should also expect to pay a higher interest rate on your new 100% mortgage. Zero-down loans make for more risky mortgages. No less, a higher interest rate may be well worth it if it allows your family to take advantage of increasing property values instead of increasing rents.

Timothy Phillips is a mortgage banker and newspaper columnist.  Homebuyers should always consult a professional for guidance specific to their situation.