Potential home buyers have a lot to consider when preparing to purchase their first home. One thing that usually needs to be worked out is how to pay for the down payment. A down payment can cost thousands of dollars in cash, which may take some time to come up with. This usually leads to delaying the purchase of a home and staying in the world of renting for longer. But what if you want to buy now? The good news is that it’s possible to get a home without having to pay a down payment.
No-down-payment home loans are available to people in certain situations. Your income, previous home buying experience, the location of your potential home, and so on can all come into play when finding a no-down-payment home loan.
Read on for more information on ways you can buy a home without having to save for a down payment.
What Is a Down Payment?
A down payment is the first payment that you make toward your new home and is typically a small percentage of the overall amount that you’re borrowing from a financial institution. This amount requires home buyers to use cash, which is why people have to save up to pay for it. Lenders require this payment to be made in cash because it significantly decreases their risk. Having some of your own money invested into the property can make people less likely to miss loan payments, and it shows they’re more serious about buying a home and paying back their loan for it.
The price of a down payment usually ranges from 3 to 20 percent of the total cost of your home, making it a hefty amount to pay up front. But in some cases, you won’t be required to pay it. This can open up the potential for home ownership and make it more attainable for people with little to no savings to buy a home.
What Options Are There for Home Loans With No Down Payment?
There are a few ways you can secure a mortgage with a financial lender without having to save for a down payment, and the most popular way is to get a no-down-payment home loan. These loans don’t require borrowers to pay the up-front percentage on their homes. Instead, they can go directly into paying off the total loan balance in monthly payments.
No-down-payment home loans are becoming more popular, especially among first-time home buyers, but first-time buyers aren’t the only ones eligible for these types of programs. Below are a few of the most popular options for people who have no down payment saved for a home loan but are still interested in home ownership.
Depending on your income, you may be eligible to apply for a United States Department of Agriculture (USDA) loan. Through this program, low- to moderate-income households have the opportunity to own a home in eligible rural areas. If you’re unsure if your area qualifies as a rural area, you can use the USDA eligibility site to search and review general eligible areas. These loans are readily available through most financial institutions and can be an accessible way to secure a no-down-payment home loan.
To be approved for a USDA home loan, applicants must meet certain criteria, such as meeting income-eligibility requirements, agreeing to personally occupy the dwelling as their primary residence, and being a US citizen, a non-citizen national, or a qualified alien. If you meet the criteria, you can then reach out to a qualified financial institution to begin the application process. Some USDA home loans offer reduced interest rates and the possibility of rolling closing costs into your total loan amount.
Every financial intuition will have its own personal home loans that come with their own terms. Credit unions in particular are known to have no-down-payment home loan options for their members. These options are perfect for well-qualified buyers who can meet certain criteria.
With a good credit score, a history of on-time payments, and a small debt-to-income ratio, a zero-down home loan is very possible with a credit union. If you are approved for an option such as this, you’ll be able to benefit from benefits like waived lender fees and reduced private mortgage insurance (PMI), which can save you even more in the long run.
Solarity Credit Union offers no-down-payment home loans. Their Home Now loans have quick pre-approval decisions and home loan closings that are fully online, making the closing process much faster than most.
FHA loans are a home loan option that has been helping people become homeowners since 1934. The Federal Housing Administration (FHA) provides its own insurance on the loan, which allows your lender to offer you a better deal. This better deal can include features like lower down payments, low closing costs, and more flexibility when reviewing your credit history. While they don’t offer zero-down-payment loans, they do offer one of the lowest down payment options available, which can allow you to purchase sooner than you could with a conventional loan down payment.
Are There Other Costs That Will Require Saving?
While not having to pay a down payment on your home will definitely save you money up front, you should still be saving if you’re considering buying a home. The down payment isn’t the only payment that requires you to use cash. There is a list of things that will need to be paid for before you officially own your home.
The closing costs are a variety of expenses that fall under the same umbrella. They include loan origination fees, title insurance, homeowners’ insurance, private mortgage insurance, property taxes, and so on. Closing costs usually add up to a few thousand dollars in the end, which means that saving up will definitely be required for people looking to buy a home. Still, opting for a no-down-payment loan from a credit union can put you on the path to home ownership much sooner.