How To Buy A House With Little to No Money Down
February 2, 2023
Many people dream of purchasing a home, but bringing that dream to life requires saving for a sizable down payment. Or does it? This may surprise you, but buying a home with little or no money down is possible. However, with the right lender, you can take the first step towards home ownership without having to sacrifice for years and save for a hefty down payment. Here’s how.
Zero-down mortgages do exist, typically in the form of government-sponsored loan programs. These loans are backed by the federal government, making them less risky for the private lender as the government provides insurance if the borrower defaults. This added security enables private lenders to offer more flexible loan application standards and zero-down mortgage options.
Here’s a short list of some of the most common zero-down mortgages.
VA loans are unique because they are only available to borrowers with military service experience. These loans are highly sought after thanks to low-interest rates and zero-money-down payment options.
To qualify, borrowers must obtain eligibility certification by serving 90 consecutive days of active duty during wartime, 181 days during peacetime, or six years in the National Guard or Reserves. While the Department of Veteran’s Affairs does not set a minimum credit score requirement, lenders generally require scores in the low- to mid-600s and a debt-to-income ratio of no more than 40 percent.
USDA loans are a good choice if you’re shopping for a home in a rural area. These government-backed loans are attractive because the government finances the entire purchase price, which means borrowers do not have to make a down payment.
To qualify, borrowers must have a credit score of at least 640 and an income no less than 115 percent of the area median income. Finally, the home must be your primary residence in a USDA-designated region.
Low Money Down Mortgage Options
If you do not meet eligibility requirements for VA or USDA loans, several low-money-down mortgage options remain. Here are the most common.
Government-backed FHA loans are federally insured, which means private lenders can offer more flexible loan standards. Unlike conventional loans, FHA loan standards require borrowers to make a 3.5 percent down payment. However, there is one caveat: if you have a weak credit score, you may have to make a conventional 10 to 20 percent down payment.
There’s a common misconception that borrowing money through a conventional loan means making a 10-20 percent down payment. This actually isn’t true. The confusion stems from the fact that if you make a down payment of less than 20 percent, lenders require you to carry private mortgage insurance (PMI)
As a first-time home buyer, you may still be able to purchase a home by only making a 3 percent down payment. But, after that, you may need to shop around and explore your options.
JustChoice Lending: Your Mortgage Solution
Want to learn more about how to buy a house with little to no money down? JustChoice Lending (JCL) is a socially responsible mortgage lender committed to connecting clients with the ideal loan solution. We offer competitive rates and extend our services to individuals with diverse income levels and credit scores, empowering them to achieve their goal of owning a home. Contact us to get started today!
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