Julia Anderson
Even with no money down, you could still buy a house. Here’s how.
When most people start dreaming of becoming a homeowner, they think of how they’d like the home to look and where they’d want it to be. What thought usually comes next? How they’ll pay for the home, or more specifically, how much cash they’ll need to put down to get a mortgage.
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Down payments on homes can be a significant chunk of change, keeping many low-income families out of the loop. But thanks to various programs, you can now become a homeowner with little to no down payment.
Zero Down Payment Mortgages Explained
A zero-down mortgage is a house loan that does not require a down payment. What is a down payment? It’s the first payment made on the home that is typically due once you close on the loan. The down payment equals a percentage of the amount borrowed. For example, if you get a loan for a $300,000 home that requires 20 percent down, your down payment would be $60,000. That’s a ton of money to put down, and it’s an amount that many low-income households probably lack. This is why it’s good to know that you can now get zero-down mortgages.
As for why lenders require down payments in the first place, they do it to reduce risk. Lenders believe that if you invest a large sum of cash into a home via your down payment, you’ll be less likely to abandon the loan and default on it.
Types Of Zero-Down Mortgages
You have two options to get a mortgage with no down payment, and both come via government-backed loans. Such loans are insured by the federal government. If you stop repaying the loan, the lender and the government will step in to foot the bill.
Government-backed loans with zero down payment are usually offered to people who need financial assistance with becoming homeowners. It’s a solid deal for lenders since they know the government is reducing their risk. As such, they can lower their requirements to take on riskier borrowers with lower credit scores and no down payments.
VA Loans
The first type of government-backed loan that requires no down payment is the VA loan (or VA-backed purchase loan). These loans are reserved for those with military service and some of their family members.
You can get a VA-backed purchase loan with no down payment if the home’s sales price does not exceed the appraised value. Beyond avoiding a down payment, this loan also offers the benefit of better interest rates and terms than most mortgages from typical lenders.
To learn more about VA-backed purchase loans, go here.
USDA Loans
The second option for a zero-down mortgage backed by the government is the USDA loan (or Section 502 loan). The U.S. Department of Agriculture backs it. While not having to put anything down is the biggest benefit of USDA loans, they also feature lower fees than other mortgages.
To qualify for a USDA loan, you must buy a home in a suburban or rural area. It must also be a single-family unit and your primary residence. Your income cannot exceed 115 percent of the median household income for your area.
To learn more about USDA loans, click here.
Eric Tomasso
