If not for down payments, many more people would be homeowners. The down payment is a hurdle that deters them from even trying to purchase a home. Even with a reasonable income, it’s no easy feat to accumulate 20% of a house’s purchase price.
The happy news is that you don’t have to come up with a sizeable down payment. Several programs offer up to 100% financing. So you may be buying that first home sooner than you think.
What is a no down payment mortgage?
A mortgage that allows the first-time purchasers to buy a home without any up-front money, except for the usual closing costs, is a no down payment mortgage.
There is no need for a buyer to pay a 20% down payment in the current housing market. It was a fact that became a myth with the first FHA (Federal Housing Administration) loans established in 1934. Only with the conventional loan is a 20% down payment needed to avoid having to pay PMI (private mortgage insurance).
Related: Signs You’re Ready to Buy Your First Home
USDA Loans (100% financing)
Formally known as a Rural Housing Loan, the U.S. Department of Agriculture (USDA) provides no deposit mortgages. This loan is available to potential low to moderate-income buyers who will live in the property located in an eligible area. The focus of the USDA Single Family Housing Guaranteed Loan Program is for rural development and to provide families with opportunities for ownership of safe, sanitary, and decent dwellings.
Some features of this loan are:
- You can include the cost of eligible repairs and improvements with the loan amount.
- It is NOT restricted to first-time homeowners.
- The dwelling must be in an eligible rural area.
- Available to people who can not get a conventional loan without having to pay PMI.
If you don’t qualify for this loan, the USDA also has a direct 502 purchase program where they can subsidize your mortgage payments, as long as you don’t earn more than 80% of the MHI (median household income).
VA Loans (100% financing)
The no deposit VA loan is available to members of the U.S military (active duty and honorably discharged) and their spouses. The loan may be obtained from private lenders and guaranteed by the U.S. Department of Veteran Affairs, or it may be a VA direct loan where the VA is the mortgage lender.
Loans are available for owner-occupant homes or for homes to be occupied by the eligible spouse or dependent (for active duty service members).
Features of this loan are:
- You may borrow to build, buy, or improve a home.
- No down payment is needed as long as the selling price is not above the appraised value.
- No need for PMI or MIP (mortgage insurance premiums)
- Fewer closing costs.
- No penalty if you pay the mortgage off early.
Veteran Affairs also offer Cash-out refinancing loans, Native-American direct loans, and Interest rate reduction refinance loans.
Related: How to Get a Veteran Home Loan
Low down payment required
The following loans require a down payment, but it’s significantly smaller than 20% of the purchase price. If you don’t qualify for a zero-deposit loan, you may be eligible for one of the following.
The HomeReady Mortgage (3% down)
The HomeReady Mortgage is backed by Fannie Mae and is available from almost every U.S. based lender. This mortgage offers the home buyer low mortgage rates, reduced mortgage insurance, and inventive underwriting.
The income of everyone living in the home is considered when determining qualification and approval for the mortgage. You can also use boarder income or a non-zoned rental unit (even if you’re paid in cash) to qualify.
This loan is designed to get multi-generational households owning their dwellings by offering mortgage financing with only a 3% down payment. But the program may also be used by anyone in an eligible area who meets the household income requirement.
Are you looking for a creative solution to your home-buying situation? We can help you with your mortgage, so you can spend your time finding your dream home. Call Mares Mortgage today!
Conventional loan 97 (3% down)
The Conventional 97 loan is available from Fannie Mae and Freddie Mac, asking only a 3% down payment for a home. For some, this is a better offer than an FHA loan. The mortgage deposit may come from gifted funds as long as the giver is a blood relative, a spouse (or fiance/fiancee), or related through legal guardianship or domestic partnership.
A few features of this loan are:
- The loan amount cannot exceed $510,400, even if that’s the home’s appraised value.
- Only a fixed-rate mortgage is available.
- Only single-unit dwellings are eligible.
- This loan may be used to refinance a home loan.
FHA loans (3.5% down)
These are not loans from the FHA, but they insure the loans. The FHA produces guidelines for loans it will guarantee, and any lender who issues loans under these standards gets the FHA backing against loss.
Well-known for their flexibility regarding credit scores and down payments, the FHA will insure home loans for buyers with low credit scores as long as there is a reasonable explanation.
A few features of an FHA insured loan are:
- You only need a 3.5% down payment if your FICO score is 580 or above.
- You’ll need a 10% down payment if your FICO score is between 500 and 579.
- This down payment may be entirely from ‘gifted’ money.
- The purchased home must be your primary residence.
Final thought: Don’t deplete your savings
Any of the above loans can be a life-saver to you and your family. Completely depleting your savings to buy or maintain a home is often called ‘house-poor’ and isn’t an acceptable circumstance. Being house-poor means you look as though you have plenty, but you actually have little or no money set aside for emergencies.
The journey of homeownership is full of unexpected expenses – roofs collapse, electrical systems falter, and of course, illness can happen. So savings aren’t a luxury; they’re a necessity.
Scraping your savings account clean to pay a sizeable down payment on a home may seem admirable, but it is unwise – especially since you have options.
Do you still have questions? Call Mares Mortgage today!