How to buy a house with $0 down in 2022: First time buyer
How to buy a house with no money
A no down payment mortgage allows first-time home buyers and repeat home buyers to purchase property with no money required at closing, except standard closing costs.
Other options, including the FHA loan, the HomeReady mortgage, and the Conventional 97 loan, offer low down payment options starting at 3% down. Mortgage insurance premiums typically accompany low and no down payment mortgages, but not always.
Furthermore, mortgage rates are still low.
Rates for 30-year loans, 15-year loans, and 5-year ARMs are historically cheap, which has lowered the monthly cost of owning a home.
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Can you buy a house with no money down?
If you want to buy a house with no money, there are two big expenses you’ll need to avoid: the down payment and closing costs. This may be possible if you qualify for a zero-down mortgage and/or a home buyer assistance program.
Five strategies to buy a house with no money include:
- Apply for a zero-down VA loan or USDA loan
- Use down payment assistance to cover the down payment
- Ask for a down payment gift from a family member
- Get the lender to pay your closing costs (“lender credits”)
- Get the seller to pay your closing costs (“seller concessions”)
When combined, these tactics could put you in a new home with $0 out of pocket.
Or you might get your down payment covered, and then you’d only need to pay closing costs out of pocket — which could reduce your cash requirement by thousands.
First-time home buyer loans with zero down
There are just two major loan programs with zero down: the USDA loan and the VA loan. Both are available to first-time home buyers and repeat buyers alike. But they have special eligibility requirements to qualify.
No down payment: USDA loans (100% financing)
The U.S. Department of Agriculture offers a 100% financing mortgage. The program is known as the ‘Rural Housing Loan’ or simply ‘USDA loan.’
The good news about the USDA Rural Housing Loan is that it’s not just a “rural loan” — it’s available to buyers in suburban neighborhoods, too. The USDA’s goal is to help “low-to-moderate income homebuyers,” wherever they may be.
Many borrowers using the USDA loan program make a good living and reside in neighborhoods that don’t meet the traditional definition of a ‘rural area.’
Some key benefits of the USDA loan are:
- No down payment requirement
- No maximum home purchase price
- Below-market interest rates
- The upfront guarantee fee can be added to the loan balance at closing
- Monthly mortgage insurance fees are cheaper than for FHA
Just be aware that USDA enforces income limits; your household income must be near or below the median for your area.
Another key benefit is that USDA mortgage rates are often lower than rates for comparable low- or no-down-payment mortgages. Financing a home via USDA can be the lowest-cost path to homeownership.
No down payment: VA loans (100% financing)
The VA loan is a no-down-payment mortgage available to members of the U.S. military, veterans, and surviving spouses.
VA loans are backed by the U.S. Department of Veterans Affairs. That means they have lower rates and easier requirements for borrowers who meet VA mortgage guidelines.
VA loan qualifications are straightforward.
Most veterans, active-duty service members, and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of service members killed in the line of duty.
Some key benefits of the VA loan are:
- No down payment requirement
- Flexible credit score minimums
- Below-market mortgage rates
- Bankruptcy and other derogatory credit information does not immediately disqualify you
- No mortgage insurance is required, only a one-time funding fee which can be included in the loan amount
In addition, VA loans have no maximum loan amount. It’s possible to get a VA loan above current conforming loan limits, as long as you have strong enough credit and you can afford the payments.
Low down payment first-time home buyer loans
Not everyone will qualify for a zero-down mortgage. But it may still be possible to buy a house with no money down by choosing a low-down-payment mortgage and using an assistance program to cover your upfront costs.
If you want to go this route, here are a few of the best low-money-down mortgages to consider.
Low down payment: FHA loans (3.5% down)
The ‘FHA mortgage’ is a bit of a misnomer because the Federal Housing Administration (FHA) doesn’t actually lend money.
Rather, the FHA sets basic lending requirements and insures these loans once they’re made. The loans themselves are offered by nearly all private mortgage lenders.
FHA mortgage guidelines are famous for their liberal approach to credit scores and down payments.
The FHA will typically insure home loans for borrowers with low credit scores, so long as there’s a reasonable explanation for the low FICO.
FHA also allows a down payment of just 3.5% in all U.S. markets, with the exception of a few FHA approved condos.
Other benefits of an FHA loan are:
- Your down payment may come entirely from gift funds or down payment assistance
- The minimum credit score is 500 with a 10% down payment, or 580 with a 3.5% down payment
- Upfront mortgage insurance premiums can be included in the loan amount
Furthermore, the FHA can sometimes help homeowners who have experienced recent short sales, foreclosures, or bankruptcies.
The FHA insures loan sizes up to $ in designated “high-cost” areas nationwide. High-cost areas include places like Orange County, California; the Washington D.C. metro area; and, New York City’s 5 boroughs.
Note that if you want to use an FHA loan, the home being purchased must be your primary residence. This program isn’t intended for vacation homes or investment properties.
Low down payment: The HomeReady Mortgage (3% down)
The HomeReady mortgage is special among today’s low- and no-down-payment mortgages.
Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady mortgage offers below-market mortgage rates, reduced private mortgage insurance (PMI) costs, and innovative underwriting for lower-income home buyers.
Via HomeReady, the income of everybody living in the home can be used to get mortgage-qualified and approved.
For example, if you are a homeowner living with your parents, and your parents earn an income, you can use their income to help you qualify.
The HomeReady program also lets you use boarder income to help qualify, and you can use income from a non-zoned rental unit, too — even if you’re paid in cash.
HomeReady home loans were designed to help multi-generational households get approved for mortgage financing. However, the program can be used by anyone in a qualifying area, or who meets household income requirements.
Freddie Mac offers a similar program, called Home Possible, which is also worth a look.
Home Possible is a little less flexible about income qualification than HomeReady. But it offers many similar benefits, including a minimum 3% down payment.
Low down payment: Conventional loan 97 (3% down)
The Conventional 97 program is available from Fannie Mae and Freddie Mac. It’s a 3% down payment program and, for many home buyers, it’s a less expensive loan option than an FHA mortgage.
Basic qualification requirements for a Conventional 97 loan include:
- Loan size may not exceed $, even if the home is in a high-cost market
- The property must be a single-unit dwelling. No multi-unit homes are allowed
- The mortgage must be a fixed-rate mortgage. No adjustable-rate mortgages are allowed via the Conventional 97
The Conventional 97 program does not enforce a specific minimum credit score beyond those for a typical conventional home loan. The program can be used to refinance a home loan, too.
In addition, the Conventional 97 mortgage allows for the entire 3% down payment to come from gifted funds, so long as the gifter is related by blood or marriage, legal guardianship, domestic partnership, or is a fiance/fiancee.
Low down payment: Conventional mortgage (5% down)
Conventional 97 loans are a little more restrictive than ‘standard’ conventional loans, because they’re intended for first-time home buyers who need extra help qualifying.
If you don’t meet the guidelines for a Conventional 97 loan, you can save up a little more and try for a standard conventional mortgage.
Conventional mortgages are the most popular loan type in the market because they’re incredibly flexible. You can make a down payment as low as 5% or as big as 20%. And you only need a 620 credit score to qualify in many cases.
Plus, conventional loan limits are higher than FHA loan limits. So if your purchase price exceeds FHA’s limit, you might want to save up 5% and try for a conventional loan instead.
Conventional mortgages with less than 20% down require private mortgage insurance (PMI). But this can be canceled once you have 20 percent equity in the home. So you’re not stuck with the additional fee forever.
Low down payment: The “Piggyback Loan” (10% down)
One final option if you want to put less than 20% down on a house — but don’t want to pay mortgage insurance — is a piggyback loan.
The “piggyback loan” or “80/10/10” program is typically reserved for buyers with above-average credit scores. It’s actually two loans, meant to give home buyers added flexibility and lower overall payments.
The beauty of the 80/10/10 is its structure.
- With an 80/10/10 loan, buyers bring a 10% down payment to closing
- They also get a 10% second mortgage (HEL or HELOC)
- This leaves an 80% mortgage loan
- Since you’re effectively putting 20% down, there is no PMI
The first mortgage is typically a conventional loan via Fannie Mae or Freddie Mac, and it’s offered at current market mortgage rates.
The second mortgage is a loan for 10% of the home’s purchase price. This loan is typically a home equity loan (HEL) or home equity line of credit (HELOC).
And that leaves the last “10,” which represents the buyer’s down payment amount — 10% of the purchase price. This amount is paid as cash at closing.
This type of loan structure can help you avoid private mortgage insurance, lower your monthly mortgage payments, or avoid a jumbo loan if you’re right on the cusp of conforming loan limits.
However, you’ll typically need a credit score of 680-700 or higher to qualify for the second mortgage. And you’ll have two monthly payments instead of one.
If you’re interested in a piggyback mortgage, discuss pricing and eligibility with a lender. Make sure you’re getting the most affordable home loan overall — month-to-month and in the long term.
Home buyers don’t need to put 20% down
It’s a common misconception that “20 percent down” is required to buy a home. And, while that may have true at some point in history, it hasn’t been so since the advent of the FHA loan in 1934.
In today’s real estate market, home buyers don’t need to make a 20% down payment. Many believe that they do, however — despite the obvious risks.
The likely reason buyers believe 20% down is required is because, without 20 percent, you’ll have to pay for mortgage insurance. But that’s not necessarily a bad thing.
PMI is not evil
Private mortgage insurance (PMI) is neither good nor bad, but many home buyers still try to avoid it at all costs.
The purpose of private mortgage insurance is to protect the lender in the event of foreclosure — that’s all it’s for. However, because it costs homeowners money, PMI gets a bad rap.
Because of private mortgage insurance, home buyers can get mortgage-approved with less than 20% down. And, eventually, private mortgage insurance can be removed.
At the rate today’s home values are increasing, a buyer putting 3% down might pay PMI for fewer than four years.
That’s not long at all. Yet many buyers — especially first-timers — will put off a purchase because they want to save up 20 percent.
Meanwhile, home values are climbing.
For today’s home buyers, the size of the down payment shouldn’t be the only consideration.
This is because home affordability is not about the size of your down payment — it’s about whether you can manage the monthly payments and still have cash left over for “life.”
A large down payment will lower your loan amount, and therefore will give you a smaller monthly mortgage payment. However, if you’ve depleted your life savings in order to make that large down payment, you’ve put yourself at risk.
Don’t deplete your entire savings
When the majority of your money is tied up in a home, financial experts refer to it as being “house-poor.”
When you’re house-poor, you have plenty of money on paper but little cash available for everyday living expenses and emergencies.
And, as every homeowner will tell you, emergencies happen.
Roofs collapse, water heaters break, you become ill and cannot work. Insurance can help you with these issues sometimes, but not always.
That’s why being house-poor is so dangerous.
Many people believe it’s financially conservative to put 20% down on a home. If 20% is all the savings you have, though, using the full amount for a down payment is the opposite of being financially conservative.
The true financially conservative option is to make a small down payment and leave yourself with some money in the bank. Being house-poor is no way to live.
Mortgage down payment FAQ
Here are answers to some of the most frequently asked questions about mortgage down payments.
The minimum down payment varies by mortgage program. VA and USDA loans allow zero down payment. Conventional loans start at 3 percent down. And FHA loans require at least 3.5 percent down. You are free to contribute more than the minimum down payment amount if you want.
There are just two first-time home buyer loans with zero down. These are the VA loan (backed by the U.S. Department of Veterans Affairs) and the USDA loan (backed by the U.S. Department of Agriculture). Eligible borrowers can buy a house with no money down but will still have to pay for closing costs.
There are two ways to buy a house with no money down. One is to get a zero-down USDA or VA mortgage if you qualify. The other is to get a low-down-payment mortgage and cover your upfront cost using a down payment assistance program. FHA and conventional loans are available with just 3 or 3.5 percent down, and that entire amount could come from down payment assistance or a cash gift.
The no-money-down USDA loan program typically requires a credit score of at least 640. Another no-money-down mortgage, the VA loan, allows credit scores as low as 580-620. But you must be a veteran or service member to qualify.
Down payment assistance programs are available to home buyers nationwide, and many first-time home buyers are eligible. DPA can come in the form of a home buyer grant or a loan that covers your down payment and/or closing costs. Programs vary by state, so be sure to ask your mortgage lender which programs you may be eligible for.
Home buyer grants are offered in every state, and all U.S. home buyers can apply. These are also known as down payment assistance (DPA) programs. DPA programs are widely available but seldom used — many home buyers don’t know they exist. Eligibility requirements typically include having low income and a decent credit score. But guidelines vary a lot by program.
Yes, cash gifts can be used for a down payment on a home. But you must follow your lender’s procedures when receiving a cash gift. First, make sure the gift is made using a personal check, a cashier’s check, or a wire. Second, keep paper records of the gift, including photocopies of the checks and of your deposit to the bank. And make sure your deposit matches the amount of the gift exactly. Your lender will also want to verify that the gift is actually a gift and not a loan in disguise. Cash gifts must not require repayment.
FHA loans typically require a credit score of 580 or higher and a 3.5 percent minimum down payment. You will also need a stable income and two-year employment history verified by W-2 statements and paystubs, or by federal tax returns if self-employed. The home you’re purchasing must be a primary residence with 1-4 units that passes an FHA home appraisal. And your loan amount cannot exceed local FHA loan limits. Finally, you cannot have a recent bankruptcy, foreclosure, or short sale.
Just as there are benefits to low- and no-money-down mortgages, there are benefits to putting more money down on a home purchase. For example, more money down means a smaller loan amount — which reduces your monthly mortgage payment. Additionally, if your loan requires mortgage insurance, with more money down, your mortgage insurance will be removed in fewer years.
Mortgage insurance is typically required with less than 20 percent down, but not always. For example, the VA Home Loan Guaranty program doesn’t require mortgage insurance, so making a low down payment won’t matter. Conversely, FHA and USDA loans always require mortgage insurance. So even with large down payments, you’ll have a monthly MI charge. The only loan for which your down payment amount affects your mortgage insurance is the conventional mortgage. The smaller your down payment, the higher your monthly PMI. However, once your home has 20 percent equity, you’ll be eligible to have your PMI removed.
Lender fees are typically determined as a percentage of your loan amount. For instance, the loan origination fee might be 1 percent of your mortgage balance. The bigger your down payment, the lower your loan amount will be. So putting more money down can help lower your lender fees. But you’ll still have to bring more cash to the closing table in the form of a down payment.
How can I fund a down payment?
A down payment can be funded in multiple ways, and lenders are often flexible. Some of the more common ways to fund a down payment are to use your savings or checking account, or, for repeat buyers, the proceeds from the sale of your existing home.
However, there are other ways to fund a down payment, too.
Down payment assistance programs can fund a down payment, too. Typically, down payment assistance programs loan or grant money to home buyers with the stipulation that they live in the home for a certain number of years — often 5 years or longer.
Regardless of how you fund your down payment, make sure to keep a paper trail. Without a clear account of the source of your down payment, a mortgage lender may not allow its use.
How much home can I afford?
The answer to the question “How much home can I afford?” is a personal one and should not be left solely to your mortgage lender.
The best way to determine how much house you can afford is to start with your monthly budget and decide what you can comfortably pay for a home each month.
Then, using your desired payment as the starting point, use a mortgage calculator and work backward to find your maximum home purchase price.
Note that today’s mortgage rates will affect your mortgage calculations, so be sure to use current mortgage rates in your estimate. When mortgage rates change, so does home affordability.
What are today’s low-down-payment mortgage rates?
Today’s mortgage rates are low across the board. And many low-down-payment mortgages have below-market rates thanks to their government backing; these include FHA loans (3.5% down) and VA and USDA loans (0% down).
Different lenders offer different rates, so you’ll want to compare a few mortgage offers to find the best deal on your low- or no-down-payment mortgage. You can get started right here.
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