Purchasing a home nowadays can require you to put down up to 20%. Especially if you don’t have the credit score to back it up. However, there are a few alternatives that you may want to consider that are “no money down” options, such as VA and USDA loans.
A down payment on a home is normally based on a percentage of the listing price of the home. The amount that a buyer puts down can help a lender determine the best type of mortgage for the buyer.
How much you put down can have either a positive or negative affect, depending on the buyers financial situation. Putting too much down can dwindle a buyers savings while putting too little down can cost the buyer more in interest and fees down the line.
HOW MUCH OF A DOWN PAYMENT SHOULD YOU PUT
This is determined by how much savings the buyer has (overall financial situation) and also the amount of the loan for the new home.
Always look at your current financial status; savings, income, expenses, debts, assets, etc (financial inventory). To get a better gauge of your financial potential to qualify for a new home and for how much you can also always google a “mortgage calculator” and use it. Also consider closing costs, potential home renovations and setting aside funds for home emergencies.
But even if you find that your budget is still a little out of range, you can still seek a no money down option as well.
THE NO MONEY DOWN OPTION
Conventionally speaking, most loans require the buyer to put down anywhere from 3% to 10% or more. But with federally backed mortgage loan programs like the ones below, some lenders have less requirements to qualify because loans are looked at as being less risky.
United States Department of Agriculture home loan; aka a “rural housing loan”. Even though this loan typically applies to people who live in rural areas, it is also available to low to moderate income households in certain less you Jan populated suburban areas near or within major city limits.
With this loan, there is no down payment required and no set maximum home purchase price. Additionally, homeowners may have the option to include home repair costs in the loan.
To apply for a USDA home loan, applicants must meet the following requirements:
The gross total of a household’s income cannot exceed 115 percent of the county’s average income.
A homebuyer’s debt-to-income ratio cannot exceed 45 percent.
The location of a homebuyer’s potential home must be in an area deemed eligible according to the USDA’s eligibility map.
The home must be a primary residence.
These loans are backed by the United States Department of Veteran Affairs, for active duty military, veterans and their families.
This loan allows homebuyers to pay a one-time-only funding fee of 2.3 percent of the loan value instead of purchasing mortgage insurance. For every use of a VA loan thereafter, the required funding fee without a down payment is 3.6 percent.
To qualify for a VA home loan, homebuyers must meet at least one of the following requirements:
Served 90 days of consecutive service during wartime.
Served 181 days of consecutive service during peacetime.
Is the widow of a qualifying service member.
Served in the National Guard or Reserves for more than six years.
MORE LOW DOWN PAYMENT OPTIONS
If you don’t/can‘t qualify for one of the above government backed loans then there are a few other options available for you.
FHA loan down payment: Potential homebuyers can receive an FHA loan with as little as 3.5 percent down. An FHA loan is backed by the Federal Housing Administration for those with low to moderate incomes. The home must meet livability standards with the intention to be the main residence of the homebuyer. If the loan is approved, homebuyers must move in within 60 days of closing on the home.
Fannie Mae HomeReady Down Payment or a Freddie Mac Home Possible Loan: These conventional loan types each require a down payment of 3 percent, with low mortgage insurance options available. Fannie Mae HomeReady and Freddie Mac Home Possible loans are available to those with lower incomes than the average in their area. Additionally, these down payment funds do not have to come from the actual homebuyer and can be from other sources, such as a gift.
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