How To Buy A House With $0 Down
Owning a home is a strong part of the “American Dream”, but in recent times this has become more of a dream than a reality for many people. Mortgage loans have made it possible to buy a house, even with ever increasing home prices; but coming up with the down payment has become a huge challenge.
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Due to the increasing price of residential real estate, the dollar amount needed to put down on a typical purchase has become very high. With a typical 20% down payment on a conventional mortgage, you would need to come up with $40,000 cash to buy a $200,000 house. This is especially challenging for first time buyers, who have no money available to use from selling their previous house. So, even for many buyers with good credit and strong income – having that kind of cash available to use as a down payment may be impossible and thus will not get that needed mortgage.
However, there are some ways to get a mortgage with no down payment (or at least no cash out of pocket) to buy a house. Doing so will be more challenging than getting a typical mortgage with its required down payment, but with determination, patience, and flexibility, it can be done. Listed below are the ways to be able to buy a home with zero down payment.
VA Mortgages
This is perhaps the most well known way to buy a home with no down payment required. The federal Department of Veteran’s Affairs (VA), administers this mortgage program to encourage and assist home ownership for active duty armed service members and veterans. It is not available to others. Even if you are an eligible person, the following are needed to qualify:
• Prove you’re eligible: Provide a certificate of eligibility (COE) showing minimum required time of service and honorable discharge.
• Meet the minimum credit score requirement: Although VA guidelines don’t have a set minimum, many VA-approved lenders won’t accept scores less
than 620.
• Meet the debt-to-income (DTI) ratio requirement: Your total debt divided by your gross income, known as your DTI ratio, shouldn’t exceed 41%.
• Buy a home you intend to live in as your primary residence: You can’t buy a second home or investment property with a VA loan.
USDA Mortgage
Yes, that’s right – the U.S. Department of Agriculture administers a special mortgage program that also doesn’t require a down payment. Unlike the VA program, this one is relatively unknown by the public. While you don’t have to be a veteran or part of any special group, the USDA restricts these mortgages to low and moderate income buyers AND to homes that are located in rural and some suburban areas. Basic eligibility rules include:
• Prove the total income of all adults in your home: Your household income doesn’t exceed 115% of the median income limits for your county and
state.
• Provide evidence of how well you’ve managed credit: You need to show you have and will handle your credit payments responsibly. Many lenders
have a 640 minimum credit score guideline.
• Prove your total DTI ratio is no more than 41%. Plus, your monthly mortgage payment DTI ratio can’t exceed 29%. This is calculated by dividing just
your expected mortgage payment by your monthly gross income.
• Buy a primary residence in a designated USDA rural area. You must live in a home purchased with USDA financing as your primary residence.
Down Payment Assistance Programs (DPAs)
If neither VA nor USDA mortgages are an option for you, then a DPA might help you with the required down payment to secure a more conventional type of mortgage. These programs are available through many local and state run housing agencies and departments. The U.S. Department of Housing and Urban Development (HUD) provides funds to all 50 states to contribute to these down payment programs. There are typically two ways you’ll receive DPA money: as a grant, or as a second mortgage.
Most importantly, DPA funds can be used to cover the low-down-payment requirements of loans offered by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). These special mortgage programs are discussed below.
FHA Loan Down Payment
This mortgage program from the Federal Housing Agency (FHA) requires a down payment of only 3.5%. It is available to almost anyone and most types of homes and locations. Using DPA funds as discussed above, you can secure this kind of mortgage with no down payment. FHA loans also provide more liberal qualifying than conventional loans and offer lower interest and flexible payments.
Fannie Mae HomeReady Down Payment
This government mortgage agency also administers a low down payment mortgage program. It is designed to provide affordable mortgages to borrowers with low-to-moderate income. With Fannie Mae HomeReady, homebuyers can get started with as little as 3% down. Again, funds from a DPA can be used for the down payment.
Freddie Mac Home Possible Loan
This mortgage agency also has a special home buying program and like Fannie Mae, only requires a 3% down payment and funds from a DPA can be used for the down payment.
