Are you in the process of—or even just considering—buying a home, but you are getting stuck while trying to figure out how much money to put down? Potential homebuyers often agonize over how much money to put down or even put off buying a home because they never feel quite ready with an adequate down payment.
Good news: buying a home can be possible without even putting any money down.
This option may be available to you even if you have a low credit score. That said, in some cases, you may want to explore how you can boost your credit a bit to make the approval process easier. Let’s examine everything you need to know about buying a home with no money down.
The USDA Loan: Your Best Friend in Buying a Home with No Money Down
The government can directly help you buy a home in several ways; a mortgage loan with no money down is one of them.
To boost the local economies in rural and even suburban areas so that agriculture may continue to thrive, the United States Department of Agriculture (USDA) seeks to financially incentivize people to move there. Generally, the trend has been for professionals to settle in cities and their immediate metropolitan areas, a movement which the USDA is directly tackling.
They offer both USDA construction loans and USDA development loans to encourage development in rural and suburban areas.
When you have your sights on a particular home or area, you should check this map from the USDA. Houses outside the orange zones on that map may qualify for USDA loans. In addition, there are a few other guidelines to keep in mind:
- The home you wish you purchase must not already be a working farm. Remember, the purpose of these loans is to stimulate new growth.
- The home you wish to purchase must be a single-family unit to help promote new development.
- The home you wish to buy must be your permanent residence. The USDA is striving to back actual spend making it to these rural and suburban areas, and the only way that is sufficient to justify the loans is if people are making permanent moves.
If your desired home qualifies, the next step is figuring out whether your household qualifies. There are a few guidelines to keep in mind.
- Your combined household gross income must not be more than 115% of the county’s median household income in which you are hoping to buy a home. Simply put, the USDA does not think you need their help at that point.
- Your combined household debt-to-income ratio should not be higher than 45%.
- You must have a FICO credit score of 640 or higher.
If your credit score is less than 640, do not panic. You can improve your credit score; it might be easier than you think to take some steps in the immediate future that could quickly boost your credit score.
The VA Loan: A Special Option for Buying a Home with No Money Down
One of the special programs available to active or retired service members is a Department of Veteran Affairs (VA) loan that allows you to buy a home with no money down.
To qualify for a VA loan, overall, you must be either an active service member, a veteran, or the spouse of a deceased veteran. There are a few more granular guidelines to qualify, as you must have done one or more of the following:
- Served 90 consecutive days during wartime or 180 consecutive days during peace
- Served over six years in the National Guard or Reserve, or else 90 days until Title 32 orders
- Have been discharged for a service-related disability
- Been married to service member when they died either in service or from a service-related disability
You will also need a FICO credit score of at least 580 to qualify for this loan.
Low Money Down Loans
Qualifying for a USDA or VA loan is difficult. But there are still several ways to buy your first home if you don’t meet the requirements: low down payment loans and special mortgages that enable people with little credit history to own their homes.
Conventional Loans
Many people think that to get a loan, they need 20% down, but this is not always true. Depending on the lender you choose, there are many loans available with as little as 3%. If your down payment is less than 20% of the loan amount, you will likely be required to pay Private Mortgage Insurance (PMI). PMI protects lenders in case borrowers stop making payments on their loans.
Down Payment Assistance
An alternative to low money down loans is a program called Down Payment Assistance. If you can’t meet the government-backed loan requirements, this might be just what you need. The qualifications for these grants are usually relatively simple, and it’s worth looking into your options because there may also be other benefits like matching funds from employers or partnerships with nonprofit organizations.
Are you looking to buy a home and want to know your mortgage options? We offer various home loan programs, and if you don’t know which one is best for your needs, I will be happy to help guide you through the process so that everything goes smoothly from start to finish. So get in touch today to get pre-approved for a mortgage loan to finance your home purchase.
