Having the required cash for a down payment is the biggest hurdle for first-time home buyers. Ideally, homebuyers would make a large down payment to increase owner equity and decrease monthly mortgage payments. Unfortunately, for many would-be homeowners, that is simply not an option.
Is it possible to buy a house with no money?
Sometimes it is called a zero down mortgage. You may think that buying a house that requires no down payment is impossible, although it isn’t impossible. It is hard. Here is how you can buy a house with no down payment.
VA Home Loans
First of all, to buy a house with zero down payment, you have to be approved for such a loan. Veterans with sufficient income, a Certificate of Eligibility from the VA, and a good credit score might qualify. The U.S. Department of Veteran Affairs offers home loan programs to help veterans buy, build, or improve a home or refinance a home.
If you get a VA loan, keep in mind that the homebuyer is still responsible for paying the closing costs. In addition, the homebuyer is required to pay the “funding fee.” The funding fee is designed to protect the lender in case the buyer defaults on the mortgage. The amount of the funding fee depends on several factors, such as the amount of down payment, military service, VA loan history.
USDA Home Loans
Another option for a zero down payment loan is a USDA loan. The United States Department of Agriculture offers loans with low-interest rates. USDA loans are designed to assist low- or moderate-income people with good enough credit to buy a home in a rural area. If you have a credit score of over 640 and a debt-to-income ratio below 41 percent, you might qualify for automatic underwriting. The homebuyer is expected to pay a “funding fee.” The funding fee equals 1 percent of the total loan amount. There is also a USDA fee of 0.35 percent that is calculated as a percentage each year. It is tacked on to your monthly payments.
FHA Home Loans
If neither of the above loan options are available to you, consider a low down payment mortgage. FHA loans are low down payment mortgages. They only require a down payment of 3.5 percent of the home’s purchase price.
Are there any disadvantages to a zero down payment mortgage?
The greatest disadvantage of a no down payment home loan is that you will have no equity built up in your house when you buy your home. Also, since the lack of equity, it will take you longer to pay off your mortgage.
What is PMI?
Keep in mind that a no money down mortgage might require that you pay for PMI. What is PMI? PMI is private mortgage insurance. Lenders require a PMI when homebuyers make a down payment that is less than 20 percent of the appraised value of the home. The PMI normally costs approximately between 0.5 percent and 1 percent of the total loan amount.
Taking advantage of any of the above options to buy a home with no money certainly have their advantages. There are several factors to consider before you sign on the dotted line. Don’t make a decision lightly. Contact at least three mortgage professionals and weigh your options.