How To Buy Your First House With No Money Down
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How To Buy Your First House With No Money Down
The USDA loan program and the VA loan program allow eligible buyers to buy a house with no money. Both are available to first-time home buyers and repeat buyers alike. But they have special requirements to qualify.
Not everyone will qualify for a zero-down mortgage. But it may still be possible to buy a house without paying money down if you choose a low-down-payment mortgage and use a government grant or loan to cover your upfront costs.
With an FHA loan, you can put just 3.5% down as long as your credit score is 580 or higher. By contrast, a conventional mortgage requires only 3% down but you need a FICO score of at least 620 to qualify.
For example, home buyers using gift money for their down payment need to show get a gift letter from the donor. And the lender will want to see a clear paper trail showing where the funds came from and when they were deposited in your account.
There are more than 2,000 DPA programs nationwide, with assistance available in every state. Each program has its own guidelines, though most require you to be a first-time home buyer with a low-to-moderate income.
The amount of money you could get varies by program, too. For instance, one down payment assistance loan in New York City can offer up to $100,000 for eligible buyers, while another in Arkansas tops out at $15,000.
These include loan origination fees charged by the lender along with third-party fees required to set up your home loan (things like the credit report, home appraisal, title search, and underwriting fees).
Thirty-eight percent of prospective buyers say that saving for a down payment is their biggest obstacle to homeownership. Considering the median home sale price of $356,700, the average first-time buyer would spend $24,969 on a down payment.
There are resources for down payment assistance that provide a clear path to homeownership. Current legislation awaiting a vote in Congress would offer $15,000 tax credits and $25,000 grants to first-time buyers.
Down payment assistance programs typically have credit history and income requirements. Programs for first-time home buyers may require the completion of a mortgage education course. These down payment assistance options are available now.
FHA loans have a minimum 3.5 percent down payment requirement for borrowers with a credit score of 580 or higher. FHA loans have flexible credit score requirements. Borrowers with scores as low as 500 are eligible for approval if they invest a down payment of 10 percent or more.
Some loans are flexible and accept down payments entirely funded through gifts, grants, and loans. You may not have to contribute your own savings. This includes DPA funds and assistance from family or friends.
The only way to get a mortgage through the major mortgage investors with no down payment is if you take out a government-backed loan. Government-backed loans are insured by the federal government. In other words, the government (along with your lender) helps foot the bill if you stop paying back your mortgage.
The government offers guaranteed loans to people who need financial assistance when buying a home. This means that government-backed loans are less risky for the lender, and they can expand their usual loan criteria to people with riskier financial profiles, such as borrowers with no down payment.
There are currently two types of government-sponsored loans that allow you to buy a home without a down payment: VA loans and USDA loans. Each loan has a very specific set of criteria you need to meet in order to qualify for a zero-down mortgage.
Freddie Mac BorrowSmart is a 3% down payment option, but what makes this unique is that it gives a credit toward down the payment for very low to low-income clients.1 If your income is less than or equal to 50% of the county area median income, you get a grant of up to $2,500. If your income is more than 50% but less than or equal to 80% of the area median, you get a cre