Buy your first home
Updated March 13, 2020

Buy Your First Home with No Down Payment: A Guide

Mortgages

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Aren’t you tired of having to part with thousands of dollars every month in rent expenses? That is money you could save, put away for grey days, or even invest in new property. So what other option is out there for a person who needs a roof over their head you ask?

How About This?

Buying a home off-course! Having a roof over your head that belongs to you provides one of the most liberating feelings ever. Not having to hear from a landlord or landlady while also saving thousands of dollars each month is total bliss.

Buying your first home can be quite scary though, especially when you come across the financial lingo that is involved. You do not have to worry about that, we have you covered.

Here Are A Few Things You Would Need to Consider

  • First of all it’s important for you to recognize that you are not about to become the first ever home-owner, people become successful home-owners all the time.
  • If that does not settle your nerves maybe this next statement will; becoming a home-owner can be quite a painless process if you go about it right.
  • All the information you need to become a home owner in a great and painless way is out there. This piece you are currently reading happens to be part of it.
  • One of the most frequently asked questions-which is really the basis of this article- by aspiring home-owners is how someone without an abundance of finances can become a home-owner?
  • It’s quite a reasonable question since home-ownership and real-estate are often sold like a package for the uber rich.
  • That’s not true though, having millions of dollars stashed away at the bank does not hurt at all, but it’s not a necessity when it comes to home-ownership.
  • Lots of people with far more modest earnings have become home owners by going about it the smart way.
  • Even if you are low on finances, you can still buy your first home 500 by going for low or no down payment home ownership options.

Did I lose you? Keep reading because below is a comprehensive guide that will help you buy your first home500 with little or no down payment.

Good to Know: There is a whole host of mortgage programs that require little or no money down that will get you closer to your dream of owning your first home.

One More Thing: Before we get into these great mortgage programs let’s explore what a no down payment mortgage is. A down payment mortgage is a plan that enables people who are buying homes for the first time and also repeat home buyers to buy property with no money required at closing except for standard closing costs.

Pro Tip: Looking to save for a down payment on your house? We have the right tips to help you achieve this.

Is it Right for You?

You bet. The real-estate market looks quite right now with sales rising, supply dropping and an increase in prices across many cities and neighborhoods.

Do not also forget the prize at the end of it all; you owning a piece of property that you will call home and pass it down to your children.

Not sure if you should rent or own? We have the answer.

Why Do You Need a No Down Payment or Low Down Payment Plan?

Despite mortgage rates marginally declining compared to previous years, buyers are still jittery about owning homes.

Why would people still hold back even though the monthly cost of owning a home has gone down?  The 20% down payment, that’s why! That down payment hurdle has stood in the way of thousands of families trying to own homes.

Let’s get into how you can get around that expensive down payment hurdle.

No Down Payment: VA Loans (100% Financing)

The VA loan is a no down payment program made available to members of the U.S. military and surviving spouses of veterans guaranteed by the U.S Department of veteran affairs. Qualifying for this plan is pretty straightforward. The plan is available for all active duty and honorably discharged service personnel of the US army.

Keep in Mind: Aspiring homeowners who have spent at least 6 years in the National Guard or reserves are also covered in the VA plan, as are spouses of service men and women who lost their lives while in the line of duty.

The VA program is incredibly helpful for three main reasons

  1. You do not require mortgage insurance inorder to benefit from this plan which greatly reduces the amounts charged on monthly payments
  2. Home owners may use intermittent occupancy
  3. Aspiring home owners who are bankrupt and have bad credit are not automatically disqualified from the program
A Few Tips
  • VA loans are a really smart and handy choice for those who can take advantage of them. This is because this plan offers interest rates that tend to be lower than those found in your average mortgages.
  • The credit and income requirements for prospective home owners also tend to be quite flexible.
  • There is also a funding fee which might range from anywhere between 1.5% to 2.5%, which will depend on the military branch that the applicant served as well as the frequency of times they have taken the applicant loan. 

The Low Down Payment: HomeReady Mortgage (3% Down)

A low down payment mortgage is also a great plan if you are looking to buy your first home although your finances are tight. This Fannie Mae backed program is gaining popularity and can be accessed from almost every U.S lender.

Keep in Mind: The HomeReady Mortgage plan is gaining popularity for a reason, it offers below market mortgage rates, the most innovative underwriting idea for more than a decade and reduced mortgage insurance costs. This plan is also a favorite for many because of its flexible qualification criteria. It allows that the income of everybody living in a home can be used to get that family mortgage qualified.

For Example

  • For instance if you are a young adult living with your parents who earn an income, you can use your parent’s income to help you qualify for the plan.
  • You can also qualify for the HomeReady plan using boarder income as well as income from a non-zoned rental property that you own, even when the rent is paid to you in cash.

This plan was primarily designed to aid multi-generational households get approval but it is also open for anyone in a qualifying area who meets household income requirements.

Low Down Payment: Convectional Loan 97 (3% Down)

The conventional loan 97 program had been discontinued in December 2013 only to be reinstated a year later by the Federal Home finances Agency. We are going to go through its fresh guidelines after it was reinstated 5 years ago.

Good to Know: This program can be accessed from Freddie Mac and Fannie Mae. It only requires aspiring home-owners to part with a 3% down payment which is much fairer compared to an FHA loan.

Advantages

  • The convectional 97 program is quite awesome since it gives leeway for the 3 percent payable down payment to be financed by a gifter; who can be anyone close to you related by blood, marriage, as well as a legal guardian or domestic partner such as a fiancé.
  • The convectional program is also great because it does not impose a specific minimum credit score beyond those of your average home loan.
This program’s basic qualification standards are
  1. The mortgage must be fixed rate with no ARMs
  2. The size of the loan must not exceed $484,350 regardless of the market it is in
  3. The program only covers single-unit dwellings and not multiple units.

Low Down Payment: PMI Loans

PMI stands for Private Mortgage insurance which typically kicks in when a home’s down payment is less than 20% of its purchase price. Qualified borrowers of this plan can easily make down payments for as low as 3 percent.

  • A lot of borrowers find a lot of relief with PMI since it costs less than Federal Housing Administration (FHA) mortgage insurance.
  • PMI can be removed from the mortgage once a certain loan repayment threshold has been attained. In the meantime, PMI’s may drive monthly insurance payments. 

Low Down Payment: FHA Loans (3.5% Down)

The FHA mortgage is a great option if your credit is not good enough for you to qualify for a conventional loan. The down payments are as low as 3.5% and there is leeway for the funds to come from a gifter or seller.

Good to Know: FHA loans are quite popular for their lenient approach to credit scores as well as down payments. The FHA will without a doubt ensure a home loan for aspiring homeowners who have low credit scores as long as they have a reasonable explanation for their credit scores being low.

A Few Things to Keep in Mind

The low FHA loan down payment of 3.5% cannot be stressed enough. In the same vein here are some additional benefits to this plan.

  1. Your down payment may consist entirely of funds sent by gifters
  2. Your mortgage insurance premiums are paid upfront at closing and monthly thereafter which is quite convenient
  3. Your credit score requirement is only 500
Pro Tips
  • The FHA loan program ensures loan sizes up to $765,525 even in designated high-cost areas while also supporting homeowners who have experienced foreclosures, short sales, and bankruptcies.
  • An FHA program will typically charge an upfront mortgage insurance premium of 1.75 percent of the mortgage principal and if you take a 30-year loan plan with a minimum down payment, there is an annual premium of 0.8 percent of the mortgage principal.
  • In simple terms, this will translate to $800 a year for each $100,000 borrowed and $66.67 a month for a $100,000 loan principal.

Low Down Payment: The Piggyback Loan (10% Down)

This program is usually designed for buyers who have above average credit scores. This plan actually constitutes two loans, meant to give buyers added flexibility and lower payments overall.

  • This plan runs on an 80/10/10 basis.
  • The beauty of this loan is that an aspiring homeowner can split it into parts. 10 percent goes to down payment before closing.
  • 80 percent presents the loan which is the home’s purchase price. This loan is typically a conventional one offered via Fannie Mae or Freddie Mac at current market rates.
  • The last 10 percent represents the home equity loan which is typically 10 percent of the home’s purchase price.
  • These 80/10/10 home loans are designed to give aspiring homeowners the best prices possible in a way that will suit their pockets.

Different deals are available for buyers interested in purchasing condos. These buyers will typically get better rates compared to your average buyer.

No Down Payment: USDA Loans (100% Financing)

If you are an aspiring a homeowner who is not a part of the US military, there is a No down payment program, available for you.  Your sigh of relief comes from the U.S Department of Agriculture’s offer of 100% percent mortgage cover.

Good to Know: This program used to be popularly known as the section 502 mortgage cover and is now known as the Rural housing loan.

  • The USDA Rural housing loan takes care of all those who live in areas that have been classified as rural and almost forgotten.
  • This program is the epitome of inclusion because though it’s designed to focus on rural homeowners, it’s also available to those in suburban neighborhoods as well.

A Few Things to Keep in Mind

This program aims to reach and aid low to moderate income homebuyers as well. This is evidenced by borrowers of the single-family housing program who make a decent living while not residing in traditional rural areas.

The USDA loan will come through for you in a major way and those who per take in it enjoy the following benefits;

  1. There is a Maximum home purchase price
  2. The loan includes eligible home improvements and loan repairs according to the size of your loan
  3. The guaranteed fees are only added to your loan balance at closing and your mortgage insurance collections will be done monthly
  4. Lower mortgage rates comparable to other real estate plans out there
  5. A USDA loan can easily be the least costing vehicle towards home ownership that you will ever come across
Are There Restrictions?

Not only does the USDA program have restrictions on geographical limits, it also has restrictions on household income and is intended for only first-time home buyers.

This mortgage financing is backed by a bank and there is no mortgage insurance. Instead the USDA charges a 1 percent upfront guarantee fee which can be incorporated into the loan amount.

The USDA also charges an annual guarantee fee of 0.35 percent of the loan balance.

Individual Bank Options

On top of the just discussed mortgage options. Several well-known banks have loans designated for aspiring home buyers without a lot of initial down payment required. One of the bank loan programs available is; Regions financial (NYSE:RF). This offers its affordable 100 loan program which offers its 100% financing program with no mortgage insurance to borrowers who have great credit.

Keep in Mind: This program is available to your average aspiring home owner and not just elite home buyers.

Another such program is the BB&T (NYSE:BBT) financing program which offers 97% financing to low and middle income people who want to buy their first home.

Credit Union Financing

Credit union financing is another useful vehicle that will get several steps closer to owning your first home. This plan offers little to no down payments for those who have good credit as well as those who meet a certain criteria.

  • One such union is the Navy Federal Credit Union which offers full mortgage financing to military members and members of their family.
  • Some civilian employees of the department of defense and military also qualify for this program.
  • Other credit unions such as the Travis credit union and NASA Federal Credit Union also offer potential zero-down housing financing.

First Time Home Buyer Program

If you are a first-time home buyer, this program conveniently smiles on you. Several of these programs are usually offered through the government and others are offered through credit unions or banks.

  • One such popular program is the HomeReady Buyer Program which affords new home owners up to 3% of the purchase price toward closing cost assistance after they complete a homebuyer education course.
  • The downside of first time home buyer programs is that they may have limiting criteria such as income limits, limited to homes of certain values, as well as tight credit requirements.

Which Plan is Best For You?

You are probably the best-placed person to answer that; but in general VA loans are quite cool. If you aren’t a veteran, a conventional loan can work quite fine.

What this article strives to drill home, is the fact that even without bags of cash stashed away, you can still get to own a home and provide your family with a place to lay their heads.

So there are simply no excuses for living in a rented property that you are sick of living in and paying for; you’ve got options, make use of them.

Logan Allec, CPA

Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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