How to Buy a Home with No Money Down - Part 1

Buying a home shouldn’t be reserved for the wealthy. Everyone deserves the chance to own their own home if they choose. Buying a home is out of reach for many individuals due to the high cost of purchasing. That’s why mortgage lenders and the federal government have made homebuying more accessible. When purchasing a property, a certain formula is used: home cost minus down payment = loan amount.

A down payment is the amount of money you can put down immediately toward the total cost of your home. This determines the loan amount you will need to borrow. While not required in most cases, the ideal down payment option in a very competitive market is 20% LTV (LTV stands for loan-to-value ratio, which is how much the loan is compared with the selling price of the home).

This leaves many wondering how to buy a house with no money. Lenders do make it possible to purchase a home with a smaller down payment. What is a zero-down mortgage anyway, and how can you qualify?

What is a zero-down mortgage?

There are many different mortgage loans available to homebuyers, but not all of them are appropriate for everyone. A zero-down mortgage is a type of loan that doesn’t require a down payment. For those who have less money to put down up front, this is an obviously appealing choice.

The only zero-down mortgages available are government-backed loans. The government guarantees the loan through user fees, mitigating the risk lenders might take on a zero-down mortgage.

It’s important to remember that even when a loan requires a zero down payment, there may still be closing costs or other fees. Closing costs are fees charged at the closing of a homebuying transaction. They account for underwriting costs, commissions, taxes, filings and more expenses that arise during a real estate transaction. They can be paid by both the buyer and the seller, and the percentage owed depends on the terms of the deal. You will always be aware of any closing costs required before signing onto a loan. It is illegal for a lender to mislead you or omit the requirement of such fees.

First-time home buyer loans with zero down

There are two government-backed loans that can help eligible homebuyers purchase a home with zero down. They each have different rules that dictate who can and cannot get this type of loan. See if you can get a no down payment mortgage.

VA Loan

The United States Department of Veterans Affairs offers 100% financing to service members and their families. If you’re looking for first-time homebuyer loans with zero down, this is a good option. Active service members in the military or National Guard, spouses of deceased veterans and veterans are all qualified for this type of loan. In order to be approved for a no down payment mortgage with the VA, you must meet this criteria:

• Served 90 consecutive days active service during wartime.
• Served 181 days active service during peacetime.
• Served six years in National Guard or Reserves.
• Your spouse was a service member who died in the line of duty or due to a service-related disability.

Additional potential qualifications are:

• Discharged due to reduction in force, or at convenience of government.
• Discharged for medical condition, such as a service-related disability.
• Discharged for early-out after serving a minimum of 21 months out of a two year enlistment.

The VA doesn’t set a minimum credit score requirement but you can expect certain lenders to. Many lenders require a minimum range of 580–620. It just depends who you get your loan from. If you’re worried because your credit score is below 580, it may still be possible to buy a home with poor credit. The VA also has residual income requirements that will depend on your personal situation.

Some benefits of a VA loan are:

• Zero-down home loan
• Flexible credit score requirements
• Lower mortgage rates
• No mortgage insurance required
• No maximum loan amount

What if you don’t qualify for government-backed loans?

There’s a lot to understand for those learning how to buy a house with no money down. As you can see, it’s no easy task. Not everyone can qualify for a no down payment mortgage. So, what do you do if you don’t qualify for a VA loan?

You’ll be happy to hear that there are alternative low-cost options for individuals who don’t qualify for VA assistance. It’s important to keep in mind that not every loan is right for your situation. You need to understand your needs and determine which loan best serves you. What are some low down payment mortgages and their required payment percentages?

Those are all questions that we will answer in the second and final entry in this short blog series. In the meantime, if you have any questions about this, or any other mortgage-related topics, contact us today. We're here to help!