If you want to buy a home, the standard recommendation is to save up a 20 percent down payment. Financial experts agree on this, but it’s one of the biggest challenges for potential homeowners. For most, 20 percent is far out of reach, and the other options, such as Federal Housing Administration loans, require a down payment of at least 3.5 percent. If you know you can make your monthly payments but don’t have a down payment, is there an option for you?
Whenever you can, it’s always best to save up a down payment before purchasing a house. Not only will doing so prove that you’re financially capable of being a homeowner, but it will also bring you a number of benefits, such as:
A lower interest rate.
A shorter length of time between moving into your home and paying it off.
More time to research the style, location and size of the home you would like to buy.
However, it’s common for life’s challenges to get in the way of saving money. You have so many everyday things to take care of, and on top of that, you’re expected to have an emergency fund and save money for retirement. It isn’t usual, but there are circumstances in which it’s better to buy now, even if you didn’t have time to get a down payment together.
The Endless Drain: Why People Want to Invest in a Home Without a Down Payment
Unless you’re lucky enough to share a home with friends or family, your rent payment likely takes up a large portion of your income. Throwing money down the drain every month can get depressing, and it’s natural to think that making house payments would be a lot more satisfying.
There might be other reasons you want to purchase a home right away. Perhaps the home you have dreamed of living in your entire life has just gone up for sale. Maybe you found a fixer-upper that’s too wonderful an investment opportunity to miss. Whatever your reason, it’s smart to look into the options if you want to purchase your home right away.
Purchasing a Home Without a Down Payment: Difficult but Possible
It is possible to get a house without a down payment. It isn’t as easy as it used to be, which is probably a good thing, but it can be done. In the past, lenders were eager to set up loans without requiring a down payment, but the housing crisis changed things. Many homeowners were left with mortgage payments that overshadowed the value of their homes. Homes were abandoned. Lenders were left with a huge mess.
A cautious atmosphere is one of the reasons that getting a loan without a down payment is harder, and the fact that homes aren’t appreciating like they used to is another. There is more risk to lenders than ever. If you want to stand out as trustworthy, work on maintaining good credit. It will be necessary no matter what route you take toward becoming a homeowner.
How to Get a Home Loan Without a Down Payment: Options for Unique Circumstances
1. Down Payment Assistance Programs
There are thousands of down payment assistance programs in the United States, and according to statistics from RealtyTrac, 87 percent of single-family homes qualify. Therefore, looking into these programs is a must. However, there are often major limitations to how much assistance you can receive. The national average is around $11,500.
2. Credit Unions and Banks
It might be possible to get a mortgage without a down payment through your local bank or credit union. These loans aren’t usually easy to qualify for, because many of them require both excellent credit and a lower income. You will need to have a steady job you can depend on to prove you can repay the lone in a timely manner.
3. USDA Loan
If you’re shopping for a home in a rural area, a USDA loan can be a great option. Most rural areas qualify for these great loans, which offer 100 percent financing and plenty of flexibility, although additional mortgage insurance is required. Your income will also need to fall within 115 percent of the area’s median income.
4. State Programs
To help increase the population, most states have programs designed to entice potential homeowners. There are sometimes certain requirements, such as taking a class on the housing market.
5. VA Loans
If you serve or served in the United States military, you are eligible for perhaps the best loan option available these days. In the VA program, homes priced up to $417,000 can be purchased without a down payment. You’ll need to prove that you can handle the financial burden, but the VA is much more forgiving when it comes to credit mishaps of the past. If you’ve had a bankruptcy, for example, they will still take a chance on you. Another benefit of VA loans is that they don’t require mortgage insurance.
6. Gift Funds
If you have friends or family with the ability to loan you a down payment for your house, you might be able to accept their gift and use it toward your down payment. The Federal Housing Administration, which requires a down payment of 3.5 percent, allows the use of gift funds. Conventional lenders do not, at least not for the standard down payment of 5 percent. If your loved ones would like to help you by stacking more on top of that, they are welcome to.
While the ability to purchase a home without a down payment is a wonderful gift in the right situation, it can also be a bit of a trap. The most important thing is to be realistic about what you can afford. In the world of real estate, following your intuition is smart, but being impulsive will get you into trouble. Only an expert can assess your financial situation and help you decide which path is best for you.