One of the major obstacles that keeps many people from buying a home is the inability to come up with a large enough down payment. In order to get the best interest rate, homeowners are typically asked to put down 20% of the home’s value. But when you’re talking about a purchase price that’s in the hundreds of thousands of dollars, that 20% isn’t exactly pocket change. If you’re struggling to save enough to make a down payment on a home, don’t lose hope. There are actually some options out there that don’t require any down payment at all.
Don’t skip over this one because of the name! We know it might sound like only farm or ranch land would qualify, but that’s not the case. In fact, 97% of land in the U.S. is in areas that are eligible for USDA loans. The United States Department of Agriculture has its own housing program to help with rural development. It allows families with low to moderate incomes to buy a primary residence outside of major cities, in rural or suburban areas. For exact location and property requirements, check the USDA Loan Program website.
U.S. Military Veterans may qualify for a VA home loan. VA loans offer 100% financing and do not require mortgage insurance. Because of this there is a one-time funding fee, which can be as low as 1.25% or as high as 3.3% of the loan amount. That amount can be financed into the loan, so no money is required up front. Credit requirements for VA loans differ by lender, though most will require a minimum 620 credit score. Some smaller lenders may take lower scores. All will require a VA Certificate of Eligibility, which can be obtained through the Department of Veteran Affairs website.
Navy Federal Credit Union
If you qualify for membership with Navy Federal Credit Union, you may be eligible for 100% financing and 0% down on your mortgage loan. Navy Fed’s HomeBuyers Choice Mortgage offers conforming and jumbo loans with a low fixed rate, no money down, no private mortgage insurance (PMI), and refinancing options. They also allow up to 6% in seller contributions. Like a VA loan, this program charges a one-time funding fee of 1.75%, which can be waived for an .375% increase in the interest rate.
Down Payment Assistance
If you’re a first-time homebuyer and don’t qualify for any of the mortgages that offer zero percent down, you might want to look into down payment assistance. Some mortgages, such as FHA loans, will allow 100% of the down payment to be gifted. So if you have a parent or someone else who wants to help out, they can gift the money to you or make a personal loan to make up the down payment. There are also government programs and grants that help first-time homebuyers make their down payments. They can be found on the Department of Housing and Urban Development (HUD) website.
Low Down Payment Option: FHA Loans
The Federal Housing Administration (FHA) does not offer zero-down loans, but they do offer loans with a very low down payment. Since eligibility requirements aren’t as stringent as conventional loans, FHA loans are very popular among first-time buyers. Even buyers with a credit score as low as 580 can qualify for a loan with a 3.5% down payment. If your credit score is lower than 580, you may still qualify with a 10% down payment. As stated in the previous option, FHA loans allow the down payment to be paid using gift funds. Some buyers have even been known to set up a crowdfunding account for friends and family to contribute toward as gifts for a wedding or birth, etc.