{"id":15274,"date":"2020-03-27T09:47:10","date_gmt":"2020-03-27T16:47:10","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=15274"},"modified":"2024-03-25T12:58:46","modified_gmt":"2024-03-25T19:58:46","slug":"buyer-how-to-buy-a-house-with-no-money-down","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-how-to-buy-a-house-with-no-money-down\/","title":{"rendered":"You Can Buy a House Without a Down Payment: Here\u2019s How"},"content":{"rendered":"

The down payment<\/a> is the single biggest hurdle to buying a house for most people. What if you didn\u2019t have to have one in order to buy a house?<\/p>\n

Guess what \u2014 in some cases, you don\u2019t! There are a handful of federal programs that allow homebuyers to purchase a house with no money down. Let\u2019s look and see if buying a house without a down payment is possible for you.<\/p>\n

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Source: (Precondo CA \/ Unsplash)<\/figcaption><\/figure>\n

What\u2019s the point of a down payment, anyway?<\/h2>\n

Lenders typically require down payments because they want buyers to have some equity in the house<\/a> already, as it makes for a less-risky loan.<\/p>\n

\u201cLenders want you to have skin in the game,\u201d explains Melanie Hunt<\/a>, a top real estate agent in Fort Worth, Texas, for more than 30 years. \u201cWhen we went through foreclosures here, the people who had no-money-down loans were some of the first that walked because they had no skin in it.\u201d<\/p>\n

There are two types of loans that do not require a down payment \u2014 VA loans and USDA rural housing loans (more on both below.) These loans allow homebuyers to purchase a home without spending any cash out of pocket on a down payment.<\/p>\n

But that doesn\u2019t mean that there won\u2019t be other costs associated with purchasing a home. Hunt says that while most of her clients are prepared for the down payment, the other costs associated with closing<\/a> often catch them off-guard. \u201cThose just grab them by surprise,\u201d she says.<\/p>\n

And just because you qualify for a no-money-down loan doesn\u2019t mean that you can\u2019t put money down anyway. \u201cAs the down payment approaches zero on any loan, add-on costs are high, often huge,\u201d says Lou Barnes, Sr. Mortgage Loan Officer at Premier Mortgage Group<\/a>. \u201cIt\u2019s often advisable to wait and save until you have 3% down.\u201d<\/p>\n

All that said, you can still get a loan with no down payment if you and the house you\u2019re buying meet certain parameters. \u201cOther than elevated costs, there is no downside to 0% financing \u2014 except one,\u201d says Barnes. \u201cHomes have surprising expenses, and if you get into trouble, you won\u2019t have enough equity to sell.\u201d<\/p>\n

To make sure that doesn\u2019t happen, Barnes suggests having \u201chay bales\u201d to protect you. \u201cYou should either have deep savings in retirement accounts that you could access if you had to, family back-up, excess disposable income \u2014 but if you have that, why not save a 3% to 5% down payment? \u2014 and discipline when it comes to spending and saving.\u201d<\/p>\n

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Source: (Paul Weaver \/ Unsplash)<\/figcaption><\/figure>\n

No-money-down loan programs<\/h2>\n

VA loans<\/h3>\n

VA loans<\/a> help service members, veterans, and eligible surviving spouses become homeowners. VA loans are provided by private lenders, such as banks, but the U.S. Department of Veterans Affairs guarantees a significant portion of the loan, making the lending terms more favorable. \u201cZero-down loans each have different characteristics,\u201d says Barnes, noting that a VA loan \u201chas the lowest mortgage insurance and is the easiest to qualify for.\u201d<\/p>\n

Parameters of VA loans<\/h4>\n

Credit score<\/b><\/p>\n

There is no minimum credit score<\/a> for VA loans<\/a>; however, lenders making VA loans often look for at least a 620 FICO score. \u201cVA loans are still feasible to 620 and below, but the cost is awful,\u201d says Barnes.<\/p>\n

Income<\/b><\/p>\n

VA loans require borrowers to have a consistent, full-time income, though there is no income limit to qualify. The exact amount of income depends on the cost of the home you\u2019d like to buy and the amount of debt you\u2019re currently carrying.<\/p>\n

VA borrowers must also demonstrate \u201cresidual income,\u201d defined as the amount of money left over from the borrower\u2019s paychecks<\/a> after paying the mortgage, property taxes, and home insurance<\/a>, and after federal and state withholdings, installments, and revolving debt are all taken out of the borrower\u2019s gross monthly paycheck.<\/p>\n

Residual income requirements depend on the number of people in the household, the cost of the mortgage, and the state in which you are buying a home. Check with a VA lender to determine your residual income requirements.<\/p>\n

Loan limits<\/b><\/p>\n

According to the VA website<\/a>, the VA does not set a cap on how much you can borrow to finance your home. There are, however, limits on the amount of liability VA can assume, which will affect the amount of money you\u2019ll be able to borrow.<\/p>\n

The loan limits are the amount a qualified veteran with full entitlement can borrow without making a down payment, and they vary by county. The basic entitlement available to each eligible veteran is $36,000, and lenders will usually loan up to four times a Veteran\u2019s available entitlement without a down payment as long as the veteran\u2019s income and credit scores are in order and the property appraises for the asking price.<\/p>\n

VA loan limits are the same as the Federal Housing Finance Agency\u2019s limits<\/a>. In 2020, those limits vary depending on your state and county.<\/p>\n

Geographic limits<\/b><\/p>\n

Properties must be purchased in the United States. This includes Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, and the Northern Mariana Islands.<\/p>\n

How can funds be used?<\/b><\/p>\n

VA home loans can be used in the following ways:<\/p>\n