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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About No Down Payment Mortgage
Have you been worried and wondering that in order to get a mortgage how much would you need to save?
But the truth is it’s possible to buy a home with no down payment!
Let us look at few options with which you can buy a home with no down payment mortgage.
You will also see a few alternatives for low down payment loans and in case you have a low credit score what are your options.
What is a No Down Payment Mortgage?
As the name suggests, a zero-down mortgage or a no-down-payment mortgage is a home loan you can get with no down payment.
The first payment you make toward the home is known as a down payment, and when you close on your home loan this payment is due.
A down payment is calculated as a percentage of the total amount you borrow.
For instance, if the cost of your home is $200,000 then by paying a 20% down payment at the time of closing you’ll pay $40,000.
A down payment is required by lenders because it lowers the risk in case you don’t pay your bills.
For the majority of homebuyers, the down payment is a major hurdle because it takes years to save up for a lump sum amount of cash.
A no down payment mortgage can be sought by you if you are taking out a government-backed loan since the federal government insures the Government-backed loans.
So in case you stop paying back your mortgage then it is the government and not your lender that will bear the loss.
People who need financial assistance to buy a home are offered insured loans by the government.
So government-backed loans are less risky for the lender, so people with riskier financial profiles, like the borrowers with no down payment also can be extended and qualify for the usual loan criteria.
Currently, USDA loans and VA loans are the two types of government-sponsored loans which are zero down mortgage.
Both the loans have a very specific set of criteria that needs to be met to qualify for a zero-down mortgage.
If you don’t meet the qualifications for a USDA loan or a VA loan then you may want to get a government-backed FHA loan or a conventional mortgage.
Both these loans give you the options for a low down payment.
How to get a Mortgage with No Down Payment?
Let’s look at the USDA loan or a VA loan, the two loans that allow you to buy a home with no down payment.
USDA Loans
The United States Department of Agriculture backs this USDA loan. To encourage development in rural and suburban areas the government offers USDA construction loans and USDA loans.
A USDA loan can be got with $0 down. Compared to other types of loans the USDA loans also have lower fees.
But to qualify for a USDA loan a few criteria must be met by you and your home. Your home must be in a rural or suburban area, which can be checked out in the USDA’s map of eligible areas to know if your home qualifies.
Anywhere outside of an orange zone in this map qualifies as a rural area. Likewise, your home cannot be a working farm, it must be a single-family unit and you must live in the home as your primary residence.
There are also a few financial requirements to be meet for you to qualify.
Your household’s combined gross income should not be more than 115% of the median income of the county your home is in.
Your debt-to-income ratio should be lower than 45%, and a FICO Score of at least 640 is a must.
VA Loans
If you’re an active-duty service member, member of the National Guard, veteran, or the spouse of a deceased veteran then you may qualify for a VA loan.
The Department of Veterans Affairs backs VA loans and serves as another option when you want to buy a home with no down payment.
VA loans have a one-time VA funding fee of 2.15% of your loan value in lieu of mortgage insurance.
To qualify for a VA loan, any one of the following service requirements must be met:
- During wartime, you must have served 90 consecutive days of active service
- During peacetime, you must have served 181 consecutive days of active service
- Served for more than 6 years in the National Guard or Reserves
- Or be the spouse of a service member who died in the line of duty or from a service-related disability
Along with the service requirements, a credit score of at least 640 is a must to get a VA loan.
Conclusion
In the home buying process, many lenders prefer borrowers who can provide a 20% down payment. Thankfully there are plenty of options for no down payment mortgages.
If you can avoid your down payment that means you have savings to fall back on in case an emergency arises.
It is ideal to take a look at your finances and make sure you considered all your options before putting money down on a house.
