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How To Buy A Home With No Down Payment
Here’s how buying a house can still be an obtainable dream for you even if you don’t have a substantial down payment.
In order to buy a house, you typically need to put down a substantial down payment when you make your offer. Many real estate experts suggest putting down 20% of the home’s cost in order to be competitive in today’s market. Doing so shows sellers that you are a reliable homebuyer who has their finances in order and will likely be able to close the deal. That said, putting 20% down means putting down hundreds of thousands of dollars. If you’re a first-time home buyer, a retiree, or feeling stuck because of low income, it may feel like owning your own house is an unobtainable pipe dream. However, you do have possible avenues where you can still buy a house with no down payment or a low down payment. Read on for possible solutions that might apply to you and make an appointment to discuss your options with a local mortgage broker or lender.
If you or your spouse are actively serving in the military or are a veteran, you are probably eligible to receive a VA loan from the Department of Veterans Affairs. The VA loan allows members of the military and veterans to purchase homes with no down payment and little-to-no closing costs. In some cases, surviving spouses of eligible veterans will also be able to apply for this loan. Your ability to apply for a VA loan does not expire, and qualified borrowers should have a credit score of at least 580 when they apply. If you think you may qualify for a VA loan, click here to read more about requirements and start your online application.
First-Time Home Buyers:
First-time home buyers tend to be at a disadvantage because they can’t reinvest the profits from the sale of their previous home into purchasing a new one. For current homeowners those profits can become a down payment for a new house while first-time home buyers have to rely on their savings. That said, first-time buyers aren’t without options. One possible avenue is to apply for an FHA loan. An FHA loan is insured by the Federal Housing Administration (FHA) so that your lender can give you a better deal. You typically don’t need a high credit score to apply, and accepted applicants will benefit from lower closing costs during escrow and can have a down payment as low as 3.5%. While the downpayment is still required, it’s much easier to save up 3.5% of the property’s price than 20%.
If you have a low income and need help buying your first home, you could also look into the Housing Choice Voucher Home Homeownership Program. In order to qualify, you must be a first-time homebuyer, meet a minimum income requirement, complete a home ownership and housing counseling program, and have at least one adult in the home working full-time for a minimum of one year. If you are deemed a candidate for this program, you will be eligible to receive grants to cover your down payment and monthly payments to help you cover home expenses.
Loans For Low-Income Buyers:
If you have a low income, don’t think you can’t qualify for a loan. For example, you may still qualify for an FHA loan with a low income even if you aren’t a first-time buyer. Let’s look at some more loans that are designed with people who have low incomes in mind.
First, the United States Department of Agriculture offers USDA loans on homes purchased in eligible rural areas to encourage development in certain rural and suburban areas. USDA loans can be used with no down payment and typically have less fees than other loans. You will need to meet a few requirements to qualify, such as your debt-to-income ratio shouldn’t be higher than 45% and you must have a FICO score of at least 640. Your combined gross household income also cannot be more than 115% of the median income of the county your home is in. To learn more about eligibility requirements for USDA loans, click here.
Another option for buying a home with a low income is to look for programs like the Home Possible loan from Freddie Mac or the HomeReady program offered by Fannie Mae. Both of these programs are similar in that they offer great options geared toward helping lower-income, lower-credit-score borrowers who want to invest in homes as a way of building wealth. You’ll be able to put as little as 3% down on your next home purchase. While you will most likely have to pay mortgage insurance, these programs tend to keep fees and payments to a minimum. Since these programs are very similar, it would be best to discuss your options to see which programs you qualify for and to determine which is best for your unique situation.
Homebuyer Assistance Programs:
Depending on where you live and factors like your age, career, and homebuyer status, you may be eligible for other homebuyer assistance programs. For example, California has several programs in place to help teachers purchase homes with affordable mortgage payments. As these programs can vary from state to state, make sure you do your research to identify local programs that may be applicable for you.
If you can’t qualify for a reasonable government-backed loan but saving enough money to put down on a house is too much of a challenge, you can also look into down payment assistance options. Down payment assistance can come in the form of grants you don’t have to pay back, forgivable loans, deferred-payment loans, low-interest loans, and matched savings programs. Down payment assistance programs tend to be most applicable for first-time homebuyers who can’t reallocate funds from the sale of an old house, but of course there are always exceptions. The requirements for receiving down payment assistance are fairly easy to meet, so it’s well worth your time to explore this option.
While buying a home with no down payment is intentionally hard, that doesn’t mean it’s impossible. But if something sounds too good to be true, it probably is. Be aware that foregoing a down payment could result in higher monthly payments or being able to pay mortgage insurance until you’ve paid back 20% of your home loan. Always read the fine print and consult with a home loan expert or mortgage broker before agreeing to anything for your own protection.
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