There is a common misconception that buying a home requires loads of money. The 20% down myth refuses to go away even though the large majority of home sales in the country involve homebuyers who put down considerably less than 20%. In fact, according to the National Association of REALTORS® 2017 Aspiring Home Buyers Profile report, “the largest share of loans for homebuyers under age 35 last year were for people putting down less than 5 percent,” (The Big Down Payment Myth, 2017).
Still, even 5% down may be a considerable barrier for some. Fortunately, there are opportunities available to purchase a home for less, perhaps even with $0 down. These opportunities are probably not as hard to find as you may think. Sixteen percent of homebuyers under 35 purchased their home with no down payment last year; that is about 1 of every 6 those homebuyers. Here are several of the more common ways you might be able to purchase a home with no down payment.
VA Home Loan
Available only to eligible and qualified veterans and active-duty members of the armed services, the VA Home Loan is definitely one of the best mortgage options available. It provides several benefits to make home ownership more affordable, such as 100% financing and rates that are comparable to, or perhaps even lower than, programs requiring considerably higher down payments. In addition, the program carries no monthly mortgage insurance, providing increased buying power at lower monthly payments.
USDA RD Loan
USDA Rural Development loans allow for 100% financing as well. Like the VA loan, the rates on USDA RD loans are usually somewhat comparable to regular conventional loans. Unlike the VA program, however, USDA RD loans do require mortgage insurance payments that will remain for the entire life of the loan. The result is a higher monthly payment and lower maximum qualifying loan amount.
FHA/State Housing Combination
An FHA loan requires a 3.5% down payment but second mortgages provided by the state housing agency are allowed, bringing the combined loan up to 100% (or perhaps even higher to cover some closing costs) of the sales price. FHA loans also require monthly mortgage insurance payments for the life of the loan and the interest rates often comparable, or slightly better, than standard conventional loan rates.
Grant programs are not a consistent, reliable source but, when they are available, they may provide funds to cover the down payment on a low-down-payment program like the FHA loan or a conventional 3% down loan. Program requirements may vary. For example, some programs are set up like a loan, with a recorded Deed of Trust, that you are not required to make payments on. In these cases, the grant is sort of a forgivable loan that you do not have to pay back unless you sell the home within a certain number of years (five is common, but it may vary.) Make sure you fully understand all the terms of any grant program before you accept the money.
The truth is that it does not usually take a lot of money to purchase a home. If you would like to discuss your specific situation and know what you will need, do not hesitate to contact me at your convenience.