Ways to Buy A House with No Money Down
You can apply for 0% down loans or find a non-traditional alternative to pay your down payment. Typically, homebuyers are expected to put somewhere between 10% and 20% down on their home to qualify for a mortgage. Lenders require a down payment in many cases because it offsets the risk for them. Remember, the lender is loaning you the cost of your home upfront. That’s why lenders need to consider your income, credit, and other factors to determine your loan worthiness.
A down payment partially serves as insurance for a lender if you fail to make a mortgage payment or default on your loan. Worst case scenario, at least they wouldn’t lose the money you paid upfront. That being said, here are some loans and alternatives that allow you to purchase a home with 0% down.
There are two types of loans that allow you to buy a home with no down payment.
The USDA Loan is a no down payment option developed by the U.S. Department of Agriculture. To qualify you need to purchase a home in a rural area and meet the U.S. Department of Agriculture’s guidelines for income. You can check this map to get an idea of the areas that will qualify. This loan is intended for families who do not make over 115% of the median household income in their area. To be approved, you’ll also need to meet their minimum credit score, income requirements, and work with an approved lender. The purpose of the USDA Loan is to help families with moderate or low incomes realize the possibility of buying a home in the U.S.
The VA Loan is a 0% down loan for Veterans. If you’re a Veteran, you can apply for this loan to purchase a home entirely through financing. To qualify, you need a VA Certificate and you need to meet the minimum credit requirements which are flexible depending on the lender. There are no income requirements. One added benefit of the VA Loan is that you are not required to pay mortgage insurance. This loan is one of the most affordable and accessible types of loans if you are a Veteran.
There are also ways to purchase a home with no money down if you are not purchasing your primary residence or if you are a first-time homebuyer.
Buying as an Investor
Down Payment Assistance Programs
Hard Money Loans for Investors
Hard Money loans are intended to provide cash for investors to flip a home. You purchase the home with no money down and apply for a loan to finance the cost of the repairs and interest. These are short terms loans with high interest. You’ll need to work with a hard money lender to secure this type of loan. The purpose of this loan is to allow you the capital to purchase the home so you can repair, upgrade, and sell the home for profit. You would keep the profit from flipping the home while the bank gets to keep the interest you pay on their loan.
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If you don’t qualify for the loans mentioned above, you might qualify for assistance programs. You’ll need to secure a mortgage that allows 100% of the down payment to be a gift. If you can reach an agreement with a lender and qualify for a grant or assistance program, you can pay your entire down payment with a grant. The best strategy here would be to find a loan with a low down payment.
Ways to Buy a House with a Low Down Payment
If you can’t qualify for the no money down loans, you can find a low down payment option that might work for you. You can either pay the low down payment with your own money or, in some cases, pay the down payment with a gift or grant. While this option is not 0% down, it is far more accessible than the traditional 20% down.
Low Down Payment Loans
3% down HomeReady Loan
These options have less strict requirements than some of the 0% down options and are open to most applicants as long as you meet the income and/or credit requirements.
FHA Loan requirements state that you must put 3.5% minimum down if you qualify. You’ll need to have a credit score of 580 or above but there is no income requirement.
The HomeReady Loan is offered by Fannie Mae. There are a couple of other similar options offered by other lenders. If you meet the income and credit requirements, you can put as little as 3% down on your home. These types of loans are designed for lower-income homebuyers who make less than 80% of the median household income in their area.
What If You Don’t Qualify for 0% Down or Low Down Payment Options?
Just because you don’t qualify for low or no down payment options doesn’t mean you need to put down 20% to purchase a home. Some people assume that a conventional home loan requires 20% down. 20% down is only considered the standard because it allows you to avoid paying Private Mortgage Insurance with a conventional loan. You are able to get a conventional loan with just 5% down payment.
Choose the Option That’s Best for You
Buying a home is likely the largest purchase you will make in your life. With the cost of home prices rising, it might not be realistic to put the traditional 20% down for your home.
These options give many renters, first time home buyers, or moderate to low income families the option to buy a house with no money down.