For would-be homebuyers, the prospect of scraping together a sizable down payment can be one of the most intimidating parts of purchasing a home. That’s especially true if they believe that they’ll need a 20-percent down payment. Fortunately, the need for a 20-percent down payment is a myth. Today, buying a house with no down payment is possible.
Buying a House with No Down Payment
What’s involved in buying a house with no down payment? That depends on the approach that you pick. There are actually a few different ways that you can pull it off.
Using Home Loans That Offer 100-Percent Financing
One of the easiest ways to buy a home without the worry of a down payment is to use a home loan that doesn’t require one. There are two loan programs that offer borrowers a chance to secure 100-percent financing:
- VA Loans: With VA loans, private lenders make the actual loans according to guidelines set by the U.S. Department of Veterans Affairs (VA), and the VA steps in to insure a portion of the loan. The arrangement reduces the risk for participating lenders and allows borrowers to receive favorable terms, including 100-percent financing, competitive interest rates, no mortgage insurance requirement, and relaxed qualifications for borrowers. The use of a VA loan is a benefit earned with military service, so eligibility is limited to service members, veterans, and their spouses. In addition, aspiring borrowers must have sufficient income and credit to qualify for the loan that they’re seeking. Finally, the property must serve as the borrower’s primary residence and meet specific standards set by the VA to ensure that it is safe and structurally sound.
- USDA Loans: Like other government-backed loan programs, the USDA’s Section 502 loans are made by private lenders and insured in part by the United States Department of Agriculture (USDA). Also called a Rural Housing Loan, a USDA loan does come with geographic restrictions, but the limits are fairly generous. These loans can be used in most rural and suburban areas; urban locations will be unlikely to qualify. The USDA program also has income limits. It’s designed to serve low- and moderate-income borrowers, but the income limits are adjusted by location. If your income is near or below the median income for your area, you may qualify. If you do, you’ll have a chance to snag a home loan with 100-percent financing and no set maximum home purchase price.
Using Gift Funds for a Down Payment
The funds for a down payment don’t have to come from your bank account. What if a family member, employer, or church organization gives you the funds for a down payment as a gift? Most loan types will let you use gift funds as long as they are properly documented.
Using Down Payment Assistance Programs
If you lack the funds for a down payment, but you want to become a homeowner, down payment assistance programs offer another option. Many cities, counties, and states have programs that offer assistance in the form of loans and grants. There are even some nationwide programs. You may also be able to receive assistance with your closing costs.
Taking Out a Second Mortgage to Make a Down Payment
Taking out a second mortgage to finance your down payment can be an option. In some cases, this could be a personal loan to finance a small down payment. Or, it could be part of a special program where the second mortgage doesn’t require payment as long as you live in the home and make all of your required home loan payments in full and on time. There are plenty of possibilities, so it’s worth asking questions and exploring what’s available in your area.
Every journey to homeownership is unique. What are your housing goals? What path will you take to reach them? Is there a better way waiting to be discovered? Talk to the team at PrimeLending Denver. We understand that everyone’s story is their own, so we listen carefully to understand where you’re coming from and where you want to go. Then, we work with you to offer expert insights and user-friendly guidance about the home loan products that can help you achieve your goals. To learn more about our services, reach out to us today.