Homebuyers in the United States typically need to pay around 10% to 20% of a home’s selling price as a down payment. This requirement serves as a safeguard for lenders, while also indicating to them that you are financially responsible. However, the down payment is often looked upon as a big obstacle to the path toward homeownership. Even in modestly priced neighborhoods, the down payment can amount to thousands of dollars.
Fortunately, there are different types of mortgage programs that require little to no down payment. Zero and low down payment home loans are made available to individuals who meet specific eligibility criteria, which include having good creditworthiness. So, what options might you have?
The United States Department of Agriculture (USDA) is responsible for issuing USDA loans through its Rural Development Guaranteed Housing Loan Program. You may think about applying for this zero down payment loan if you are an eligible rural or suburban home buyer. USDA loans come in three forms:
One of the benefits of getting a USDA home loan without a down payment is the lower insurance premium when compared to other types of loans. In addition, if you take a look at the USDA eligibility map based on the type of property you wish to purchase, you will notice that most areas outside of the country’s major cities also qualify as rural areas.
There is no minimum credit score requirement for a USDA loan. However, you become ineligible if you have existing delinquency of a nontax federal debt. Applicants without adequate credit history may consider applying because other factors are then taken into account. If your credit score is lower than 640, your application goes through a more stringent underwriting process.
How much you may borrow through a USDA loan depends on the location of your desired home, and limits vary from one county to the next. Limits in most countries range between $120,000 and $250,000, although they can go up to around $570,000.
The U.S. Department of Veteran Affairs is responsible for providing VA loans. People who may qualify include existing service members, veterans, as well as eligible surviving spouses. These home loans without down payment also take away the worry of making monthly mortgage insurance payments. However, you need to pay a funding fee that may vary depending on your military category and the type of loan you get. The offerings include:
While the VA loan program does not have a minimum credit score requirement, it is not unusual for lenders who accept a minimum down payment for home loans to have their own requirements. Most lenders look for credit scores in between 620 and 640, although there are some that accept lower scores. You will also need a valid Certificate of Eligibility (CoE).
There is no maximum limit surrounding how much you may borrow through a VA loan. However, there is a limit on the amount that the VA guarantees. For a single-unit property, this limit currently stands at $484,350 in most states across the country. If you are looking at buying a home in a high-cost market, the limit extends up to $726,525.
If minimum down payment for home loans is your main criteria in looking for a mortgage, you might benefit by taking a look at what the Federal Housing Administration (FHA) has to offer. FHA was founded in 1934, with the aim of reducing requirements to get a home loan and encouraging homeownership. FHA loans are issued by FHA-approved lenders, and they are insured by FHA.
While you cannot get a home loan without down payment through FHA, you might qualify to make a 3.5% or 10% down payment. What makes FHA loans particularly popular is that they offer increased flexibility through the eligibility criteria.
Since FHA works as a guarantor on your loan, you need to make mortgage insurance premium payments. This is because if you end up defaulting on the loan, FHA is responsible for repaying the lender the amount you owe toward the mortgage. How long you need to keep paying mortgage insurance premium depends on the loan-to-value ratio as well as the loan term.
Fannie Mae provides these loans for first time home buyers who wish to purchase primary residences. You need to pay at least 3% as a down payment. Private mortgage insurance remains in place until you acquire at least 20% equity in your home. Most lenders who provide these loans require credit scores of 680 and above.
Fannie Mae provides these loans for low and moderate-income earners who wish to purchase primary residences as well as for those who want to refinance existing primary residence mortgages. These loans require 5% down payment. Until you get 20% equity in your house, you keep making payments toward private mortgage insurance. A credit score of 680 or above is typically required.
Freddie Mac provides these purchase and refinances loans to applicants who do not own any other property, although it makes a few exceptions. You need to pay at least 5% as down payment, and private mortgage insurance is part of the parcel. Your credit score needs to be 660 or above.
You might benefit by getting a home loan with a low or no down payment if you want to buy a house quickly, but do not have money to put toward the down payment. Given the existing market scenario and mortgage interest rates, this might be as good a time as any to consider going the homeownership way. Some people also get home loans with a low or no down payment so they may continue to have more cash on hand to take care of other expenses or to make investments.
The idea of paying zero or minimum down payment for home loans comes with its share of drawbacks. Even if you get a competitive interest rate, you will, in all likelihood, end up making a higher monthly repayment. Other drawbacks might include:
Several homebuyers look at paying zero or minimum down payment for home loans. Depending on factors such as your income, creditworthiness, and what you do for a living, you might qualify for a home loan without down payment or one that requires you to pay 3% to 10% as a down payment. However, the type of loan you get notwithstanding, it is important that determine if you can afford to make mortgage payments and keep up with other homeownership costs. Once you get that out of the way, all you need to do is contact a reliable lender.
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