The Smart Way to Buy a Home with No Money Down
Renting for a short period of time is usually a good thing. It teaches people to manage a budget for all their debt and encourages good habits about taking care of a property. However, there is a time to stop renting and start investing for the future. By following a few wise strategies it is possible to begin the process to buy a home and say bye-bye to renting. The best part of this scenario is that it can be done without a down payment!
The Basics: Make Sure Everything Has been in Good Shape for the Past Year
Review all of your current debt and make sure all payments have been made on time for the past year. This includes automobile loans, credit cards, student loans, and any unsecured debt. It should also include the simple things like basic utilities and car insurance. Most importantly it should include the last 12 rent payments. If you have any or all of these items and they have all been paid timely for the past year then you are off to a great start.
The Intermediate: Have A Small Nest Egg Saved Up
While it is totally possible to buy a home without paying any money down, that does not mean there will not be any costs involved at all. 99.9% of the time a prospective home buyer will need to pay earnest money in order to seal a purchase contract. This is simply a sign of good faith from the buyer that they do intend to purchase the home. The amount of the earnest money can range from $300 to $1,000. If the sale does go through this money may be used towards the closing costs.
Along with the earnest money there are also closing costs and prepaid items. Certain loans allow the seller to pay part or even all of the closing costs and prepaid items. However, not all sellers are willing to do this since it cuts down on their profit from the sale of the home. Preparing for the possible expense now will cut down on surprises later.
The Advanced: Investigating the Possible Loans for Your Home
There are two kinds of loan that do allow the buyer to sign a loan for 100% of the sales price. There is a third kind of loan that will allow people to buy with a small down payment of 3.5% of the sales price, but there is good news about that too. Here is a brief summary of the 3 loans.
- USDA Mortgage – Provided by the United States Department of Agriculture (USDA), these mortgages can have loan amounts up to the sales price (no down payment) or the appraised amount, whichever is higher. There are income requirements as well as restrictions about eligible properties, but a majority of the people in any area will qualify for this loan based on income guidelines.
- VA mortgage – This loan is for qualifying members of the military. There are several guidelines about service time for people who are already discharged as well as people that are currently active in the military or reserves. For people that meet the service requirements and have met the requirements mention at the beginning of this article this is a great way to purchase a home.
- FHA – this loan requires the buyer to pay 3.5%* of the home’s price as a down payment. HOWEVER, it is possible for this money to be a gift from one of the buyer’s relatives. This means that an FHA loan can possibly be bought without the buyer paying anything down.
If you follow the Basics, Intermediate, and Advanced steps outlined above then you should be another home owner that did not have to make a down payment to acquire the home.
- Important Disclosure
*3.5% down payment on $193,000, 4.125% / 5.713% APR, 640 FICO, 30-year fixed rate mortgage. Mortgage insurance is required. Rates subject to change. Subject to credit approval.
The VA mortgage program is available to eligible Veterans only.
For all USDA mortgage loans, property and income restrictions apply.