It can be difficult, if not impossible, for many people to save up to 20% of a home’s purchase price to qualify for a conventional mortgage. While mortgages have recently become more flexible in down payment requirements, it can be difficult for lower-income individuals to save a substantial amount of money to cover down payment requirements and closing costs. Additionally, down payments of less than 20% typically require mortgage insurance, which increases the monthly mortgage payment. With inflation, high mortgage rates, and rising home prices, prospective homebuyers need all the assistance they can get to cover these costs. Thankfully, some mortgages don’t require a down payment, making homeownership more accessible. This guide highlights how homeowners can reduce their down payment costs to zero.
USDA Loans
The United States Department of Agriculture (USDA) created mortgages to help populate more rural or unoccupied areas. For this reason, these mortgages are only issued to those looking to buy homes in qualified areas. However, these loans typically don’t require any money down in return. They may also offer more competitive interest rates than conventional mortgages. People who avoid using USDA loans are looking to live in highly populated areas; however, there are many approved locations closer to city centers than people may think. Similar to a conventional mortgage, putting less than 20% down is usually subject to mortgage insurance.
VA Loans
VA (Veterans Affairs) mortgages are intended for veterans and their families, including the National Guard. Borrowers can be on active duty or retired. Surviving spouses of veterans may also qualify for a VA loan if they remain unmarried. These loans are attractive to most as they offer no down payment requirements, competitive interest rates, flexible qualification requirements, and are backed by the government. While you do have to serve in the military to qualify, these loans aren’t subject to location restrictions, unlike USDA loans.
Other Zero-Down Mortgages
In recent years, particularly since the COVID-19 pandemic, more lenders are establishing programs to make homeownership more accessible. While these types of mortgages vary depending on location and lender, they typically have specific qualification requirements. Some programs, such as the 0 down purchase program, require a borrower’s income to be below a certain threshold, generally under 80% of the area’s average income. Other programs are limited to first-time homebuyers (usually people who haven’t owned a home in at least three years). Programs like NACA (Neighborhood Assistance Corporation of America) offer mortgages with no money down (including closing costs) nationwide. To learn about the zero-down mortgage programs in your area, try a simple online search or consulting with various lenders to discover options you may qualify for.
Homebuyer Assistance
Outside of mortgage types, many counties offer homebuyer assistance through grants, forgivable loans, or liens to lower or eliminate down payment or closing costs. The types of assistance vary by location, and similar to zero-down mortgages, they may be subject to income restrictions or first-time homebuyer status. Some assistance programs require short-term homeowner education courses to prepare buyers for mortgages and homeownership. It’s important to note that these forms of assistance may not cover the entire down payment or closing costs, especially if the price of the home is higher.
Down Payment Gifts
Prospective homebuyers can sometimes receive gifts from family or friends to help cover a home’s down payment or closing costs. Gifts can help someone secure a house when they otherwise may not have been able to save up the money to do so. However, not all mortgages or lenders allow gifts from friends or family members to help pay closing costs. Be sure to consult with your lender beforehand and determine what is and isn’t allowed regarding financial gifts. It’s also generally advised to avoid gift payments in cash to establish a more accessible paper trail. Giftees may be required to state that the gift payment does not require repayment in writing before a lender can approve the loan.
Conclusion
In today’s economy, securing the funds to pay a down payment on a home can be difficult. Thankfully, there is a wide range of mortgages and homebuyer programs to help assist with down payments, some of which require no down payment. VA loans, USDA loans, and other types of zero-down mortgages can secure a more affordable loan for those who need it. Home-buying assistance programs help first-time homebuyers or lower-income individuals cover down payment costs. Gifts from friends or family may also reduce a down payment requirement to zero. It’s essential to consult with a lender to determine what types of down payment assistance or zero-down mortgages you qualify for.
We hope you found this blog post Unlocking Homeownership: How To Buy A Home With Zero Down Payment, useful. Be sure to check out our post Understanding When To Rent Or Buy a Home for more great tips!
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