The real estate market is hot and it’s tough for regular people to find that perfect home. One of the biggest difficulties is coming up with a hefty down payment. Many people don’t bother looking because they don’t have the 20 percent down.
Anyone looking for a home with no money down have options. It can be more difficult, and you may require flexibility, but there are several different ways to buy a house. We created this guide to give you hope in owning your own home.
It’s a dream of many people and you can make your dream come true through a zero-down mortgage.
No Money Down VA Loans
The federal government has several programs available for homeownership including VA Home Loans.
The U.S. government wanted to help those that served their country to be able to own a home. The biggest draws to this loan are no down payment and no private mortgage insurance. Mortgage insurance is something you pay that helps make sure you won’t default on the loan.
There is a funding fee that covers foreclosure costs in case of default. The program also requires the home to be your main residence and must meet certain standards of safety. If you’re a veteran and need a home, you likely qualify for this program.
In addition to no down payment, there are relaxed qualifications for credit scores and bad credit such as bankruptcy will not disqualify you from the program.
There is also no limit on the loan. If you make a lot of money and have good credit, then you can get any home you like. This is the best home loan program for veterans and spouses of veterans.
USDA Rural Home Loan
The USDA Home Loan is designed for rural areas that may not have many people looking for homes. You won’t qualify if you’re looking in an urban area, but if you live in a small town, it can cover the mortgage.
One of the biggest misconceptions is it’s only for homes deep in the country. It’s for a rural area, even if that area is within a small town or community. It’s even available for people living in the suburbs.
This also requires no down payment, but lenders often require a credit score of at least 640. Scores that are lower than that can still qualify, but you’ll need a down payment.
The goal is to provide homes to people that are low to middle income.
What Makes Government Loan Special?
How can government loans provide you with zero down payment house? The main reason is the government promises to cover your loan if you end up defaulting.
Bank and other lenders base their decision to offer a loan based on risk. People with low credit scores, no down payment, or low income are at a higher risk of default.
With a 20 percent down payment, the bank already has 20 percent of the cost of the home before providing a loan. This drops the risk significantly.
Government-backed loans cover the cost of the home if you default. This also drops the risk. The bank knows that if down the line you default on the loan, they can get the remainder from the government.
If you don’t have money for a down payment and need money to buy a house, then consider lease-to-own homes. This is an agreement between you and the owner of the home.
Instead of a down payment, you lease the home with part of the lease amount going towards a down payment. It’s placed into an account and after an agreed-upon term, you use the money to purchase the home.
It’s usually far less than 20 percent and there is the risk that even with that payment you won’t be able to get a loan at the time. There is a risk, so make sure the lease agreement includes provisions in case this happens.
Another type of lease-to-own home takes the down payment out of the equation. It is again an agreement between you and the homeowner. You provide a monthly payment and then after an agreed-upon number of years or payments, you own the home.
Down Payment Assistance
Everyone knows that the down payment is the most difficult part of the home buying process. To overcome this obstacle, many states offer down payment assistance programs. Each program is different, so contact your local state agencies.
Down payment assistance often comes in the form of grants to help pay for the down payment. There are often several different programs in states including one for first-time homebuyers.
These programs either provide for all or a portion of the down payment. Keep in mind what you need to qualify for each program. These programs have helped thousands of people through the years realize their dream of homeownership.
Gifts Are Also an Option
It doesn’t matter where the down payment money comes from, so if you have a relative offering to provide the down payment as a wedding or graduation gift, then it qualifies.
The biggest issue is you don’t know when or if it’s going to happen. You can also ask a relative directly and promise to pay it back. Remember, this adds to your costs.
You’ll pay back not only the mortgage but also the loan for the down payment. You should talk to your accountant near tax time to see how the government taxes the gift. They may count it as income.
A Home Can be Yours
Many people dream of one day owning a home and putting down roots. With programs such as the VA and USDA Home Loans, you can get a home with no money down. Before deciding, use a down payment calculator to find out how much you would traditionally need.
If you want to learn more about home buying programs and the home buying process, please contact us today.