5 MORTGAGES WITH NO DOWNPAYMENT REQUIRED
Saving enough money for a big down payment is the sticking point for a lot of people who would love to be homeowners. In today’s world 20% down is not a realistic option for many first time home buyers. The good news is that you don’t have to wait years to be able to afford a home. You can do it with a minimal down payment or no down payment at all, if you know where to look. Here are 5 good suggestions to help you in your search.
1. Conventional loan with private mortgage insurance
Conventional loans are the most common type of mortgage, and you can get one with less than 20% down. You will have to pay private mortgage insurance for a period of time though. Mortgage insurance is what protects the lender in the event you default on your loan.
The Conventional 97 program offers qualified buyers mortgages with as little as 3% down. If you purchase a $150,000 house for example, your down payment will be $4,500. Conventional 97 is backed by Fannie Mae not the Federal Housing Administration (FHA). First time and repeat home buyers can qualify, but must be purchasing a primary residence. The maximum loan amount is $484,350. The minimum credit score is 620. 30 year fixed rate mortgages are available.
Private mortgage insurance is paid along with the principal and interest payments you make monthly. Once you have paid 20% of your loan to value ratio, you can have the insurance removed from your mortgage. This won’t happen automatically. You must contact the lender and formally request it.
Another option backed by Fannie Mae is the HomeReady mortgage. This is a 3% down loan aimed at low income individuals. HomeReady allows income pooling. This means all members of a household from grandparents to working children can pool their resources in order to qualify for a mortgage.
2. FHA mortgages
FHA mortgages are backed by the federal government. You can get a loan with as little as 3.5% down if you have a FICO score of 580 or higher. Buyers with FICO scores in the 500 - 579 range must put down at least 10%. You must be purchasing a primary residence.
Loans are available to first time and repeat buyers. You must have mortgage insurance in the form of an upfront mortgage premium and an annual premium. The upfront premium is a one time only charge paid at closing and can be rolled into your loan. The annual premium is paid monthly. You may be locked into the annual premium for the life of your loan.
3. USDA mortgages
U.S.Department of Agriculture (USDA) loans are offered to low to moderate income individuals living in rural areas. Before you dismiss this opportunity you should know that about 97% of the United States is designated as rural for the purposes of the loan. USDA mortgages are available with no down payment. Closing costs range from 3% to 5%, but unlike other types of mortgages this one allows you to roll your closing costs into your loan.
In order to qualify your income level must not exceed 115% of the area’s median income. Your credit score must be 640 or higher, and you have to be purchasing as an owner occupant. You can get a fixed rate loan for 15 or 30 years. If you have gone through a bankruptcy or foreclosure you have to wait three years before you can apply for this financing.
4. VA Mortgages
Those in the armed forces or retired from it can get financing through the U.S. Department of Veterans Affairs (VA). VA mortgages are 100% loans with no mortgage insurance required. In order to qualify you must have served at least 90 consecutive days during wartime or actively served 181 days during peacetime.
National Guard and those in the Reserve can qualify after serving for more than 6 years. Spouses of service members who died in the line of duty or as a result of a service related injury can also qualify. You will not qualify if you were dishonorably discharged.
VA mortgages don’t have specific income thresholds in order to be approved. The VA does require that borrowers have steady incomes that cover all their monthly expenses. Borrowers also have to show that they have sufficient residual income every month for items like food and transportation.
Private lenders finance VA loans. Because of that there may be additional criteria borrowers must meet. There is also a funding fee that can be as little as 1.25% or as high as 3.3%. The amount of the funding fee depends on the down payment size, the type of military service rendered, and whether this is a first time VA loan or a repeat.
5. Navy Federal Mortgages
The Navy Federal Credit Union has more members and assets than any other credit union in the country. Navy federal mortgages are available with no money down and no private mortgage insurance. These loans are similar to VA loans. They are restricted to the military, the U.S. Department of Defense, some civilians employed by the military, and family members. There are funding fees attached to them as well. The funding fee for navy federal mortgages is 1.75%. Loans are for owner occupants only.
There is a freedom lock option with these loans. You can relock one time before closing if the rates go down. To take advantage of this option you have to contact the loan officer at least 14 days prior to closing. You must close within 60 days of the first lock.
Home ownership is a lot more affordable than most people think it is. Even if you don’t qualify for a 100% loan there is down payment assistance available from several different sources. It may take some perseverance and creativity, but it is possible to become a homeowner without making a huge down payment or having perfect credit.