The most common impediment for first-time home buyers is saving for a down payment. The good news is that you do not have to put down 20% to purchase a home. Indeed, if you served in the military, are a rural home buyer, a credit union member, or qualify for 100 percent financing through certain mortgage lenders, you may be able to buy a house with no money down. Down payment assistance programs can also enable you to purchase a home with very little money out of pocket.
If you or your spouse is a qualifying current service member or veteran, you may be eligible for a Department of Veterans Affairs-guaranteed loan. What to expect: VA loans do not demand a down payment or private mortgage insurance, but you must pay a funding fee to cover the expense of foreclosure if you default on the loan. Although the VA does not need a minimum credit score or income, lenders must. The property must also be your principal residence and fulfill the minimal safety requirements established by the VA. USDA loans are zero-down mortgages backed by the USDA for low- and moderate-income house purchasers in qualifying rural regions. What to anticipate: While USDA loans do not legally require mortgage insurance, you must pay a guarantee fee to safeguard the lender in the case of a foreclosure. Although the USDA does not have a minimum credit score requirement, lenders typically need a score of at least 640. If you are a physician, you may be eligible for a physician loan with no down payment. What to expect: Because of the huge amount of medical school debt that the borrower may have, physician loans do not require private mortgage insurance. They also usually have flexible proof of work criteria and may accept larger debt-to-income ratios. Some lenders offer their own 100% mortgage financing. Government loans are more common because of the risk involved for lenders. Lenders can lose a lot of money if you default on the mortgage and end up in foreclosure. If your mortgage lender is a credit union, you need to be a member.
If you do not qualify for a no-down-payment mortgage, the next best option may be a loan with a low down payment. The minimal criteria differ based on the kind of mortgage and lender selected. FHA loans, which are underwritten by the Federal Housing Administration, demand as low as a 3.5 percent down payment for borrowers with a credit score of 580 or above. However, if your score is between 500 and 579, you will be required to pay 10%. There are debt-to-income ratio restrictions, and the property must fulfill FHA’s minimum standards, in order to qualify for an FHA loan. You will also be required to pay FHA mortgage insurance. Some traditional mortgages, such as the HomeReady and House Possible programs, demand as little as 3% down payment and are intended for low-income home purchasers. The HomeReady mortgage from Fannie Mae allows for a credit score as low as 620. A credit score of at least 660 is required for Freddie Mac’s Home Possible loans. While you must pay private mortgage insurance, both of these conventional low-down-payment loans allow you to cancel it once your equity exceeds 20%. If all of the borrowers on the loan are first-time home buyers, at least one of them must complete a homeownership education course in order to qualify.
Don’t give up if you don’t initially qualify for a no- or low-down-payment mortgage. There are several state and municipal programs for first-time home buyers that provide down payment and closing cost help.