How to buy a house with a $0 down Payment
Both first-time and repeat buyers buy a house with no money down, other than the standard closing costs. With a mortgage that doesn’t require a down payment.
You can buy a house with only 3% or 3.5% down with other options, like loans from the FHA. There are also grants and loans that could help you pay for the down payment.
Housebuyers no longer have to save for years to be able to buy a house, thanks to these programs. Many people are ready to buy but don’t yet know it.
Can you buy a house with no money as a down payment?
There are two ways to buy a house without putting any money down. You can either get a mortgage with no down payment or find a programme to help with your down payment (and potentially closing costs, too).
There are five ways to buy a house with no money:
- Apply for a VA loan or a USDA loan with no down payment.
- Use help with the down payment to pay for the down payment.
- Ask a family member to give you a down payment gift.
- Lenders may offer “lender credits” to help with these expenses.
- The seller covering your closing costs is referred to as “seller incentives.”
When used together, these strategies could get you into a new home without you having to pay anything.
You can also have your down payment covered, allowing you to cover only the closing charges. This could cut the amount of cash you need by thousands.
Buy a house with no money down payment loans for first-time house buyers
There are only two major loan programmes, the USDA loan and the VA loan, that let you buy a house with no money down payment. Both are available to both first-time buyers and people who have bought homes before. But they have to meet certain requirements to be eligible.
No money down: USDA House loans (100% financing)
The U.S. Department of Agriculture has a mortgage that is fully financed. USDA loans, also called Rural Development Loans, are offered under this program.
The good thing about the USDA Rural Housing Loan is that it’s not just a “rural loan.” Buyers in suburban areas can also use it. The USDA wants to help people with “low to moderate incomes” buy houses in most of the U.S. but not in the big cities.
Many USDA loan recipients have stable employment and reside in regions that are not often considered “rural.”
Some of the main advantages of the USDA loan are:
- No down payment requirement
- No maximum home purchase price
- Interest rates that are below market
- At the end of the loan, the upfront guarantee fee can be added to the loan balance.
- The monthly fees for mortgage insurance are less than what FHA charges.
- Just know that the USDA has limits on how much money a household can make. Your family’s income must be at or below the median for your area.
- The rates for USDA mortgages are often lower than rates for similar mortgages with a low or no down payment. USDA home loans can be the least expensive way to buy a home.
No down payment: VA loans (100% financing)
The VA loan is a mortgage for people in the U.S. military, veterans, and surviving spouses that require no money down to buy a house.
The U.S. Department of Veterans Affairs backs VA loans. This means that borrowers who meet VA mortgage guidelines get better rates and have fewer rules to follow.
VA loan qualifications are straightforward.
Veterans Affairs is a government programme that provides benefits to most people who have been in the military, are currently serving, or have been honourably retired. Homebuyers who have served in the Reserves or National Guard for at least 6 years are also eligible, as are the spouses of service members who died in the line of duty.
Some of the best things about a VA loan are:
- No money down payment requirement
- Flexible credit score minimums
- Mortgage rates that are below the market
Even if you have been bankrupt or have bad credit, you may still be able to get a job.
There is no need for mortgage insurance. A one-time funding fee can be added to the loan amount.
Also, there is no limit on how much you can borrow with a VA loan. You can get a VA loan that is more than the current conforming loan limits as long as your credit is good enough and you can pay the payments.
Loans for first-time home buyers with low down payments
Not everyone will be able to get a mortgage with no money down. But you might still be able to buy a house with no money down if you choose a mortgage with a low down payment and use a help programme to pay for the upfront costs.
Here are some of the best low-money-down mortgages to think about if you want to go this route.
Low down payment: FHA loans (3.5% down)
The name “FHA mortgage” is a bit of a misnomer, since the Federal Housing Administration (FHA) doesn’t actually lend money.
Instead, the FHA sets basic rules for lending and makes sure these loans are covered once they are made. Almost all private mortgage lenders give out the loans themselves.
The FHA mortgage rules are well-known for not being too strict about credit scores and down payments.
Most of the time, the FHA will insure home loans for people with low credit scores as long as there is a good reason for the low FICO score.
In all U.S. markets, the FHA requires a 3.5% down payment, save for a few condos.
Another good thing about an FHA loan is:
Your whole down payment could come from a gift or down payment help.
With a 10% down payment, the minimum credit score is 500, and with a 3.5% down payment, it’s 580.
The loan amount can include upfront mortgage insurance premiums.
Also, the FHA can sometimes help people who have recently gone through short sales, foreclosures, or bankruptcy.
In “high-cost” areas all over the country, the FHA covers loans of up to $970,800. Some places with high costs of living are Orange County, California; the metro area of Washington, D.C.; and the five boroughs of New York City.
Remember that if you want to use an FHA loan, the house you buy must be your main house. This programme isn’t for second houses or properties that will be rented out.
HomeReady/Home Possibility: low down payment (3% down)
The HomeReady mortgage is different from other low-down-payment and no-down-payment mortgages available today.
Fannie Mae backs practically every U.S. lender’s HomeReady mortgage. It gives people with low-income mortgage rates that are lower than the market rate, lower costs for private mortgage insurance (PMI), and new ways of underwriting loans.
For example, the HomeReady programme lets you use income from a roommate to help you qualify. You can also use cash from a non-zoned rental unit.
HomeReady loans assist multigenerational families secure mortgages. But anyone can use the programme as long as they live in a qualifying area or make enough money.
Home Possible is a similar programme from Freddie Mac that is also worth looking into.
When it comes to qualifying for a home, Home Possible is a little less flexible with income than HomeReady. But it has many of the same benefits, like a minimum down payment of 3%.
Low down payment: Conventional loan 97 (3% down)
Fannie Mae and Freddie Mac both offer a programme called “Conventional 97.” It’s a programme that lets you buy a home with only a 3% down payment. For many people, it’s a cheaper loan option than an FHA mortgage.
Basic criteria for a Conventional 97 loan qualifying include:
Even if the home is in a high-cost market, the loan can’t be bigger than $647,200.
The house must be a single-family home. No homes with several units are allowed.
The mortgage must be one with a fixed rate. Conventional 97 doesn’t allow loans with variable rates.
The Conventional 97 programme doesn’t have a lower credit score requirement than a typical conventional home loan. The programme can also be used to change the terms of a home loan.
Also, the Conventional 97 mortgage lets the entire 3% down payment come from a gift as long as the giver is related by blood, marriage, legal guardianship, domestic partnership, or is a fiance/fiancee.
Low down payment: Conventional mortgage (5% down)
Conventional 97 loans have a few more rules than “standard” conventional loans because they are for first-time home buyers who need a little extra help getting approved.
If you don’t meet the requirements for a Conventional 97 loan, you can save up a little more and apply for a standard conventional mortgage.
Conventional mortgages are the most frequent loan type because they’re versatile. You can put down as little as 5% or as much as 20% or more. And in many instances, you may qualify with just a credit score of 620.
Also, the limits for conventional loans are higher than the limits for FHA loans. So, if the price of the home you want to buy is higher than the FHA’s limit, you might want to save up to 5% and try to get a conventional loan instead.
Conventional mortgages with less than 20% down require PMI (PMI). But you can get out of this once you have 20% equity in your home. So you won’t always have to pay the extra fee.
The “Piggyback Loan” has a low down payment (10% down)
If you want to buy a house with less than a 20% down payment but don’t want to pay mortgage insurance, you can get a piggyback loan.
Only those with better than average credit are often eligible for the “80/10/10” or “piggyback loan” scheme. Actually, it’s two loans that combine to provide homebuyers additional choices and cheaper monthly payments overall.
The 80/10/10’s structure is stunning
Buyers bring a 10% down payment to closing with an 80/10/10 loan.
They also get a second mortgage for 10% of the cost (HEL or HELOC)
This leaves a loan for 80% of the mortgage.
There is no PMI because you are putting down 20%.
The first mortgage is a Fannie Mae or Freddie Mac conventional loan at the market rate.
The second mortgage is a loan for 10% of the cost of buying the house. Most of the time, this loan is a home equity loan (HEL) or a home equity line of credit (HELOC) (HELOC).
The last “10” is the amount of the buyer’s down payment, which is 10% of the price of the house. This is a monetary payment.
This type of loan structure can help you avoid private mortgage insurance, lower your monthly mortgage payments, or avoid a jumbo loan if you’re right on the edge of conforming loan limits.
To get the second mortgage, you’ll usually need a credit score of 680–700 or higher. You’ll have to pay twice as much each month instead of once.
If you’re interested in a piggyback mortgage, talk to a lender about how much it will cost and whether you qualify. Make sure you get the home loan that will cost you the least overall, both each month and over time.
House buyers don’t need to pay 20% down
It’s a common mistake to think that you need “20% down” to buy a house. And while that might have been true at some point in the past, it hasn’t been since 1934, when the FHA loan was created.
In today’s real estate market, buyers don’t have to put down 20% of the price of the home. Still, many people think they do, even though the risks are clear.
Most likely, buyers think they have to put 20% down because if they don’t, they’ll have to pay for mortgage insurance. But it need not always be a bad idea.
PMI isn’t bad.
Private mortgage insurance (PMI) is neither good nor bad, but many people who want to buy a home still do everything they can to avoid it.
The only thing private mortgage insurance is for is to protect the lender in case of foreclosure. PMI, on the other hand, gets a bad name because it costs money.
Not at all
Private mortgage insurance makes it possible for buyers to get a mortgage with less than 20% down. And private mortgage insurance can be taken away in the long run.
At the current rate of inflation, a buyer who puts down 3% may have to pay PMI for less than four years.
That’s not very long. Still, a lot of buyers, especially first-timers, put off buying because they want to save up to 20%.
In the meantime, home prices are going up.
The size of the down payment shouldn’t be the only thing homebuyers think about today.
This is because the price of a home doesn’t depend on how much you put down. Instead, it depends on whether you can make the monthly payments and still have enough money for “life.”
With a big down payment, your loan amount will be less, so your monthly mortgage payment will be less. But if you’ve used up all your savings to make a big down payment, you’ve put yourself in danger.
Don’t deplete your entire savings
Financial experts say that you are “house poor” when most of your money is tied up in your home.
When you’re house poor, you have a lot of money on paper but not much cash for day-to-day costs and emergencies.
And emergencies happen, as any homeowner will tell you.
The roof falls in, the water heater breaks, and you get sick and can’t work. There are times when insurance can help you with these things, but not always.
Being home poor is risky for this reason
Many people think it’s smart to buy a home with a 20% down payment. If you only have 20% saved, though, using the whole amount as a down payment would be the opposite of being smart with your money.
The best way to be smart with your money is to put down a small amount and leave some money in the bank. Nobody should lack a place to live.
