Buy with No Money Down
Low Down Payment Loans
The FHA program is still one of the best programs to borrow money with a low down payment. Although the borrower needs 3.5% down payment at the time, the closing costs can be financed by having the owner pay them.
Unlike subprime mortgages, FHA still required solid proof of income, a solid work history, a decent credit score and an appraisal for the value of the home by an FHA certified appraiser.
Again, at the moment, FHA loans only require 3.5% down and an owner can contribute up to 6% of the purchase price toward closing costs, meaning a buyer can effectively purchase a $150,000 home with only $5250 out of pocket.
Compare this to someone who is considering renting a home. If they plan to rent a typical row home for $1000 per month, they’ll generally need the first month’s rent plus one month for security deposit. That means they need to have $2000. If they’re buying that $90,000 row home under an FHA program, they’d need $3150, which is not significantly more, and the loan payment will be likely to cost them less per month than rent would on a similar home.
Are there 100% financed loans?
Yes, you can own a home for zero down payment. Before you shake your head, thinking I’ve lost my mind, there are still zero down payment loans (at least in the United States). There are rural housing loan programs, veteran’s loans and some community reinvestment loans or home owner’s outreach programs.
It is absolutely true that these types of loans are far more limited than the 100% financing programs that existed a few short years ago, but please keep in mind that you can still take advantage of the programs that exist.
Obviously, if you are living in a very urban area, you may not be able to utilize any rural housing programs, but you may find some great community reinvestment loans. Rural housing loans or farm and home loans were created to help buyers in rural locations, but are often available for homes that are a close commute to population centers.
The Department of Agriculture’s Rural Development mortgage guarantee program is not limited to farmland. Small towns, boroughs, and many suburban communities qualify for financing through the USDA program. In many parts of the country, USDA rural housing loans are available within a fifteen to twenty minute drive of an urban center.
The USDA has maps on its website that highlight eligible areas: http://eligibility.sc.egov.usda.gov
Rural housing loans also have income limit restrictions, based on family size and location. You’ll need to determine the terms of the loans that are currently available, the income restrictions on these loans, and the locations that qualify.
“But that home may not be in the exact location I want,” you might say. A rural housing program allows buyers the chance to own if they’re willing to drive a little further, and you may discover that they like the rural lifestyle.
VA guaranteed loans are specifically for qualified Veterans. These loans are made by private lending institutions, including mortgage companies and banks, and are guaranteed by VA. VA loans do not have mortgage insurance, but do have a funding fee, although the borrower can roll the fee into the loan amount. The funding fee varies based on whether the loan is the veteran’s first or a subsequent loan and whether the veteran served in the regular military or in the Reserves or National Guard.
The Navy Federal Credit Union also offers a zero down payment program for qualified members. The eligibility is limited to members of the military, some civilian employees of the military and U.S. Department of Defense, and family members. Navy Federal is the nation’s largest credit union in assets and membership. Navy Federal’s one hundred percent financing program is similar to the VA’s, although Navy Federal’s funding fee is currently less than the VA’s funding fees.
Community Reinvestment Loans
The future and fate of many community reinvestment loans is an unknown, but there are currently banks and lenders in virtually every part of the country that offer extremely low down payment loans to borrowers who qualify. These specialized loans are designed for low or moderate income borrowers or first time buyers.
Many of the loans have income restrictions, but they tend to be liberal enough that many buyers qualify. Some programs require the borrower to take a class on home ownership.
In my area of Pennsylvania, the Home Owners Outreach Program, is managed by a group of banks and lenders and allows a buyer to purchase a home with only $1600 in total funds. On a $120,000 purchase, that amounts to only 1.33% down.
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