Pros and cons of no-down-payment.
Coming up with a downpayment for your dream home can be a bit of a headache for anyone. Most financial experts recommend for 10% - 20% to avoid payment extra each month for private mortgage insurance.
Fortunately, there are options for a conventional mortgage that can help you buy a house with no money down.
Pros
- You don't have to save up as much money
- You're able to own your home sooner
- You'll have more cash to put towards upgrades and other expenses
Cons
- Little or no equity in your home for the first few years of ownership
- You may have to pay mortgage insurance premiums
- You may still have to bring money to the table to pay closing costs
Other Low or no-down-payment options
USDA Loan The U.S. Department of Agriculture offers a 100% financing mortgage. The program is also technically called a Section 502 mortgage, however, it’s more commonly known as ’Rural Housing Loan’ or a ’USDA loan.’
USDA Loan Benefits
- No down payment requirement
- No maximum home purchase price
- Eligible home repairs and improvements may be included in your loan amount
- Upfront guaranteed fee can be added to the loan balance at closing; mortgage insurance is collected monthly
VA Loans Is a guaranteed loan by the United States Department of Veteran Affairs. Designed for acitve-duty military. Veterans, and their families, this loan requires zero money down.
VA Loan Requirements
- Served 90 consecutive days of active service during wartime (or less if you were discharged for a service-connected disability.
- Served 181 days of active service during peacetime
- Served more than six years with the National Guard or Reserves (or 90 days under Title 32 with at least 30 of those days being consecutive)
- A Certificate of Eligibility, or (COE,) serves as that proof. Your COE will have the entitlement amount on it so the lender knows exactly how much the VA will give them if you were to default.
FHA Loan Down Payment Federal Housing Agency (FHA) requires a down payment of 3.5%. A monthly mortgage insurance premium (MIP) and upfront mortgage insurance premium (UFMIP) of 1.75% is paid on every loan regardless of down payment.
- Low down payment requirement (as low as 3.5%)
- Flexibility on debt-to-income ratio
- Down payment funds from family/friends allowed
Other down payment assistance programs
Good Neighbor Next Door If you are a teacher, police officer, emergency medical technician or firefighter, this program may help you buys a home with as little as $100.00 down.
- Eligible, single-family homes located in revitalization areas are listed exclusively for sale through the Good Neighbor Next Door Sales Program
- Participants must commit to live in the property for 36 months as their sole residence*
- Participants must sign a second mortgage for the discount amount. No repayment is required if you occupy the residence for 3 years
Downpayment Gift The amount that can be gifted from a family member will depend on the type of loan you choose, so it's very important that you discuss your options with your lender.
Have the Seller Pay Closing Costs Having your closing costs paid by the seller is not unheard of, but can depend of a number of factors. Another reason to trust and discuss all your options with your lender.
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