A no-money-down payment or a zero-down payment mortgage is a home loan you can get without a down payment. At the same time, a down payment is the first payment you make as a commitment toward securing the home. Many potential homebuyers are confused about how much they’ll need to save to get a mortgage. A no-money-down payment helps first-time home buyers and repeat home buyers purchase property with no money required at closing.
In this article, we’ll discuss a few available options when you want to buy a home without a down payment. How can you buy a house with zero down payment — and the pros and cons of getting one? Besides, we’d consider other few alternatives for low down payment loans and what you can do if you have a low credit score.
How to Buy a House with No Money Down?
Due to the impact of economic decline, sales are rising, supply is dropping, and prices have increased in many cities and neighborhoods. As a mortgage that requires no money down at closing, it’s hard to get a zero down payment mortgage in this climate. But few options are available when you want to buy a home without a down payment. You can only buy a house with no money down payment if you consider a government-backed loan. Government-backed loans are loans that the federal government insures. In other words, the government (not your lender) stand-in-gap of paying back your bills if you stop paying back your mortgage.
Buying a house with no money down is obtainable because the government offers insured loans to people who need financial assistance to buy a home. For lenders, this type of government-backed loan is less risky, and there are currently two types of government-sponsored loans that allow you to buy a home without down payment: USDA loans and VA loans. Government-backed loans accommodate people with riskier financial profiles, such as borrowers with no down payment to their usual loan criteria. They are obtaining these loans that come with a very specific set of conditions meant to be fulfilled to qualify for a zero-down mortgage.
There is always an alternative in case you don’t meet one of the government-backed loans. You have FHA loans or a conventional mortgage in place of a USDA loan or a VA loan. If you discover that you don’t meet the qualifications for a USDA loan or a VA loan, you may want to obtain a government-backed FHA loan or a conventional mortgage. With these options available, you can make a low down payment.
Options for A Zero Down Mortgage
There is the availability of two loans, namely a USDA loan and a VA loan, that allow you to buy a home without a down payment, and we’ll consider how you can get any of these loans.
USDA Loans
The first option for a zero-down payment loan is a USDA loan. The United States Department of Agriculture offers these loans offers with low-interest rates. If you’re planning to buy a house with no money down, then USDA loans can be the best option. You can easily get a USDA loan with $0 down, and they have lower fees compared to other types of loans.
The primary aim of these loans is to encourage development in rural and suburban areas to help low or moderate-income people with required credit scores to buy a home in a rural area. The two most popular USDA loans available are single-family direct homeownership loans and single-family guaranteed homeownership loans.
The single-family direct homeownership loan is designed for low or very low-income borrowers purchasing homes in rural areas. At the same time, the single-family guaranteed homeownership loan is suitable for those with incomes below 115 percent of the median income for the area to buy modest homes in rural areas.
Before you qualify for a USDA loan, there are few criteria that must be met by you and your home. The first is that your home must be located in a rural or suburban area. USDA provides a map to know if your home is located in the eligible areas, which defines if your home qualifies. Moreover, your home must be a single-family unit, and it must be your primary residence where you live with your family. Part of the requirements is that your home could not be a working farm.
VA Loans
To be eligible for a VA loan, you must be an active-duty service member, veteran, member of the National Guard, or the spouse of a deceased veteran. The Department of Veterans Affairs handles the VA loans and can serve as an alternative if you want to buy a home with zero down payment.
Few things you must have before qualifying for the VA loan include good credit, enough income, and a Certificate of Eligibility from the VA, among others listed below. VA loan allows no down payment on the home (applicable as the sales price isn’t higher than the home’s appraised value), no private mortgage insurance premium, and limited closing costs.
Other requirements you must meet include any one of the following:
- Involved in active service for 90 consecutive days during wartime
- Involved in active service for 181 consecutive days during peacetime
- Being a member of the National Guard or Reserves, having served for more than six years
- Be discharged as a result of a service-connected disability
- Be the spouse of a deceased service member
Apart from these service requirements, it’s expected you have a credit score of at least 580 to get a VA loan.
Zero Down Payment Loan Benefits
Zero down payment mortgage makes owning a house simple, and the perquisites of a zero down payment mortgage is second to none. Without having to put any money down, you have the mortgage to buy a house. The benefit of zero down payment is that those without savings could buy a home.
Buying a house with no money down has its downside, too, even though it may sound amazing. Among the downside is the likelihood of paying off your home loan for longer than someone that had paid money down would. In other words, you’ll likely be paying the bank thousands more in interest payments over the life of the loan. You won’t have access to an equity loan if you need to do home repairs or have other expenses you need to take care of.
What is the other alternative to Enjoying A Low Money Down Mortgage?
There are still a few options you can fall upon if you don’t qualify for a USDA or VA loan. We have numerous ways that you can buy a house without spending years saving for a down payment. Listed below are the various types of low-down-payment loan options that are available to anyone that takes advantage of them.
Conventional Loans With PMI
PMI means private mortgage insurance. PMI refers to a type of insurance that protects your lender if you stop paying back your loan. Lenders request it in a situation where your down payment is less than 20% of the loan amount. And this is against the belief that you need a 20% down payment to obtain a conventional loan. You can get a loan with as little as 3% down depending on your lender. PMI has no benefit, and it is advisable that once you have 20% equity in your home, cancel your PMI plan.
Home Possible Loans From Freddie Mac
If you have low to moderate-income than others in your area, you may want to give a Possible Home loan from Freddie Mac a trial. Applying for these loans gives you the opportunity of buying a home with a 3% down payment and lower mortgage insurance options.
FHA Loans
Supported by the Federal Housing Administration, FHA loans are loans that come with a 3.5% down payment. These loans are meant to help those people who have low to moderate-income. Since they have fewer requirements than USDA and VA loans, FHA loans permit you to buy and live in the property that serves as your primary residence, a home that meets required standards pertaining to living and you’ve to move in within 60 days of closing.
Using FHA loans permits you to pay for mortgage insurance during the duration of the loan if you have a down payment of less than 10%. The only way out, which most people resort to, is to be patient until they build 20% equity on their home and reapply for a conventional loan as a workaround. This removes the requirement of lifetime mortgage insurance.
Down Payment Assistance
If putting money down on the house is a major obstacle for you to enjoy your mortgage, another option to low money down loans is down payment assistance (DPA). DPA is the right solution for you if you can’t qualify for a government-backed loan. DPA’s requirements are easy to meet, so it’s advisable to look into your DPA options and see what you can qualify for.
Is A Zero Down Payment Or Low Money Down Loan Right For You?
It would be advantageous to meet the requirements and qualify for a USDA, VA, FHA, or home Possible loan. Meeting these requirements make you stay clear of paying an enormous down payment, especially if you still have to pay closing costs. You simply have savings to fall back on when emergencies arise when you have a reduced down payment.
Homebuyers have access to various zero-down payment assistance programs nationwide, and 87% of United State single-family homes potentially qualify. USDA and VA loans which are also government-backed can allow you to buy a home with a $0 down payment. Because the federal government backs these loans, lenders tend to be softer with down payment requirements. However, you and your home must meet USDA loan requirements to qualify for a mortgage, and you must meet service requirements with a VA loan.
Funding a zero down payment
Funding a down payment can be done in multiple ways, and lenders are often flexible, as mentioned earlier. It is easy when funding your down payment, as it can be done using your savings or check account, and for repeated buyers, you have the proceeds from the sale of your existing home. There are other ways of funding a down payment, too which include funding a down payment using down payment assistance programs. Make sure to keep a paper trail, no matter the ways you fund your down payment. A mortgage lender may use your zero down payment without stress when you have a clear account of the source of your down payment.
Down payment assistance programs loan cover grant money to home buyers with the stipulation that they live in the home for a certain number of years — often five years or fewer.
How many homes can I afford?
Answering the question above is a personal issue and cannot be solely dedicated to your mortgage lender.
To get the best answer, you must know how much can you afford for a home, and to start with, you must determine your monthly budget and ascertain what you can comfortably pay for a home each month. After that, you commence payment of your desired amount, use a mortgage calculator and work backward to find your maximum home purchase price. However, today’s mortgage rates are low across the board. And many low down payment mortgages have low market rates thanks to the support provided by the government; this includes FHA loans (3.5% down) and VA and USDA loans (0% down).
Also, understand and compare a few mortgage offers to find the best deal on your low- or no-down-payment mortgage because different lenders offer different rates. You can do something from here to achieve your dream. Take the first step toward the right mortgage by partnering with experts to make things easy for you. They will guide you to meet USDA loan standards to qualify for a mortgage, and you must meet service requirements with a VA loan.
