For potential home buyers who are in need of saving money on their purchase, there are some great ways to buy a home with a no or low down payment requirement. A few of the loans have very specific requirements in order to qualify. However, as we will show, most of these loans are available to a large majority of home buyers including first time home buyers.
VA Home Loan
Established by the Veterans Administration as a way to repay veterans returning from World War II, the VA mortgage is a true no money down home loan for Veterans with sufficient entitlement. As long as the person applying for the loan meets the military service requirement and can meet the loan guidelines, they can buy a home.
Along with the fact that the VA does not require a down payment to buy a home, there is also no private mortgage insurance on the home. Thus, the veteran can save money at the time of purchase due to the no down payment requirement and can also save money each month by avoiding the added fee of private mortgage insurance.
The VA mortgage program will also allow home sellers to pay up to 4% of the home price in closing costs. This percentage can cover a lot of the necessary fees involved in a mortgage and help the veteran save a considerable amount of money at the closing.
VA does not consider payment of the buyer’s closing costs or reasonable discount points as part of the seller concession limit. The seller concession limit is in addition to these fees. Seller concessions include, but are not limited to, the following:
- Payment of the buyer’s VA funding fee
- Payment of the buyer’s escrow account for taxes/insurance
- Gifts such as a television
- Payment of extra points to provide permanent interest rate buydowns (points exceeding 2%)
- Funds for a temporary interest rate buydown
- Payoff of credit balances or judgments on behalf of the buyer
The seller concession or combination of concessions that exceed 4% of the appraised value of the property is not allowed. Premium Pricing credits from the lender are not considered an Interested Party Contribution.
USDA Rural Housing Mortgage
Although this loan is not as popular as some of the other programs in this article, it is a true no money down mortgage option. This mortgage program is underwritten by the United States Department of Agriculture and is designed for people who wish to buy a home in rural areas.
Before going much further, let’s explain the term rural as it relates to this type of loan. The USDA has a website that lists all counties across the country. Each county is either labeled rural or non-rural. A few counties may be divided with the classification. Any home that is located in an area marked rural is deemed eligible for the USDA mortgage.
FACT: The majority of the areas in America are currently marked Rural. This means your chance of finding a home eligible for the USDA mortgage are extremely high.
Another important fact about the USDA loan is the income guidelines. This loan is designed to help people of middle to low-income brackets qualify for a mortgage. As long as the total yearly income of all working people living in the home is equal to or below 115% of the average median income in their local area, then you can apply for the USDA loan.
The USDA mortgage does not have a loan limit. The size of the loan is determined by your total yearly income along with your current debt obligations.
We saved this program for last to have ample space to explain the down payment requirements. The FHA guidelines clearly state that at the time the mortgage loan is closed, the buyer will be asked to pay a minimum of 3.5% of the home’s selling price in the form of a down payment.
HOWEVER, the guidelines do not state that the down payment money has to come directly from the borrower. It is possible to use gift money from a relative.
For example, suppose you find a home priced at $200,000 that you wish to buy. This would mean that you would need to provide $7,000 in certified funds at the closing. Thanks to the gift policy, part or all of that money can be donated to you from your parents, grandparents, aunt, uncle, or cousin. In order to make this official the donor as well as you will need to fill out a gift letter and provide documentation of where the money came from and where it was deposited.
FHA will allow the seller to pay up to 6% of the asking price in closing costs. Along with the gift money, this makes it likely for a person to buy a home with the FHA mortgage and pay very little money out of their own funds.
Summing Up No and Low Down Payment Mortgage Programs
Getting a home is not as simple as signing a lease or loan on a new car and driving away with absolutely zero costs. However, with the right loan, it is possible to buy a new home and pay absolutely nothing in the way of a down payment.
- Important Disclosure
The VA mortgage program is only available to eligible Veterans only
USDA mortgage program – property and income restrictions apply