Buying a Home with Little or No Money Down

Rising real estate prices and high inflation are taking their toll on people's budgets everywhere. When you combine these factors with a fiercely competitive housing market, a 20% down payment simply isn't feasible for many.

However, most people don't realize that 20% is a recommendation, not a rule. Don't let this stop you from buying your dream home. Below you'll find six ways to buy a home while putting little or no money down.




1. VA Loans

In addition to other benefits like subsidized education and medical insurance, active and retired military personnel can apply for VA mortgage loans. These loans allow you to purchase a home with no down payment and permit you to pay a one-time fee instead of buying mortgage insurance.

The program recently removed previous loan limits, allowing for higher loan amounts that enable applicants to purchase nicer houses. However, there are a few prerequisites besides military status. Borrowers must have a credit score above 500, a sufficient debt-to-income ratio, and proof that the home will be used as their primary residence.


2. USDA Loans

Another loan program backed by federal funding for zero dollars down comes from the USDA. These loans are intended to serve prospective homeowners in low to middle-income brackets looking for homes in rural areas.

Visit the USDA loan program website to check your eligibility according to income and location.


3. Profession-Based Loans

Several professions have advantages when it comes to securing low down payment or zero down payment loans. For example, many private lenders have zero down payment programs for medical professionals. These programs provide doctors, dentists, and other healthcare workers with more flexible requirements around insurance, employment, and debt.

Another profession-based program is the Good Neighbor Next Door Program. If you're a teacher, EMT, police officer, or firefighter, this government-backed program can help you purchase a home with as little as $100 down.

However, this program comes with quite a few stipulations. For example, the loan can only be used to purchase foreclosed homes in revitalization areas, so your choices aren't as varied. Still, it presents an attractive opportunity for some prospective homeowners.


4. Shop Around Private Lenders

While most mortgage lenders require down payments, some private lenders and credit unions offer 100% financing. This can be a huge boon for prospective homeowners without funds. The primary drawback is that the house will likely be more expensive in the long run. That's because these mortgages typically have higher interest rates and may require you to purchase private mortgage insurance.


5. FHA Loans

While Federal Housing Administration (FHA) loans aren't 0% down, at 3.5% down, they're still significantly more affordable than the traditional 20%. These government-backed loans are for lower to middle-income earners but come with fewer requirements than other government loans like VA or USDA loans.

Applicants only need a credit score of 580 or higher and must agree to live in the house as a primary residence. If your credit score is between 500-579, you must put 10% down. While they require private mortgage insurance, many people follow a simple strategy to get around this factor. If you build up 20% equity in your property, you can refinance the loan to a conventional one. This will remove the mortgage insurance payments for the remainder of the loan's lifetime.


6. Conventional Loans with Fannie Mae or Freddie Mac

Another available option is the Home Ready Loan from Fannie Mae or the Home Possible Loan from Freddie Mac. Both of these loans are available for only 3% down.

The main requirements for these loans state that you cannot earn more than 80% of the median income in your area. However, this only applies to the people mentioned in the loan agreement, not the entire household.

While the credit requirements are higher than other options in this list, at 620 and 660, respectively, it presents an excellent opportunity for those looking for affordable mortgages.


Final Thoughts

Buying a house is not an easy process. It requires a great deal of planning and financial responsibility. And for people with tight budgets, the current economic situation presents even more challenges.

However, many private and federal programs are open to prospective homebuyers who can't afford a 20% down payment. If you're in this situation, be sure to research all the options on this list to find the right one for you.




We hope this article was of value to you. For more great tips, bookmark our site and for all your mortgage needs, visit the A Team at TMFFMS.


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