How to Buy a House with No Money Down

March 23, 2021 | 8 Minute read

How to Buy a House with No Money Down

Have you ever wondered how to buy a home with no money? Perhaps you’ve asked the question, ‘can I buy a house with no money down?’ Sounds impossible, right? But it’s not! Let us explain.

One of the biggest hurdles aspiring homeowners face is a lack of cash when it comes to closing.

However, buying a home with no money down is a valid option for thousands of Americans who meet eligibility criteria for specialist loans and home buying assistance programs.

So, if you want to find out how to buy a house with no money down or are looking at buying a house with no savings, this article is for you. Read on to find information on loan options, home buying assistance programs, down payments, resources, and more.

Buying a House With No Money Down: Loan Options to

You may think you can’t afford a home due to a lack of savings. However, it’s entirely possible to buy a house with no money out of pocket .

Let’s discuss some popular loans that make buying a house when you have no money a possibility:

United States Department of Agriculture (USDA) Loan

USDA loans are backed in full by the United States Department of Agriculture. The U.S. government provides these loans as an incentive toward development in suburban and rural areas. In a bid to encourage people to relocate to these regions, USDA loans are available with $0 down and lower fees than most alternative loan options.

However, you and your property must meet several criteria to be eligible for a USDA loan. For example, your house must be situated in a suburban or rural area. View the USDA map of eligible regions to check if your home will qualify. On this map, any location outside an orange zone will qualify as a rural area. Additionally, your home can’t be a working farm, it must be a single-family unit, and the property must be your primary residence.

There are also some financial requirements for eligibility. For example, your debt-to-income (DTI) ratio can’t be higher than 45%, and your FICO score must be at least 640. Also, your household’s gross income must be less than 115% of the county’s median income in which the home is located.

Veterans Affairs (VA) Loan

Can you buy a house with no money down? You can if you’re a U.S. military veteran.

You can qualify for a Veterans Affairs loan if you’re an active-duty service member, a veteran, the spouse of a deceased veteran, or a member of the National Guard. The U.S. Department of Veteran Affairs backs all VA loans, providing an excellent option for buying a house with no savings.

VA loans allow you to pay a one-time VA funding fee, which is calculated at 2.15% of your loan value, in lieu of mortgage insurance.

To be eligible for a VA loan, you need to meet one of the following requirements:

  • You’re the spouse of a service member who died from a service-related disability or in the line of duty.
  • You’ve served 90 consecutive days of active service during wartime.
  • You’ve served 181 consecutive days of active service during peacetime.
  • You’ve served over six years in the Reserves or the National Guard.

On top of these service requirements, you must have a credit score of 640 or more to qualify for a VA loan.

For those who want to buy a house with no money, but are ineligible for VA and USDA loans, an Federal Housing Association (FHA) loan is the next best option.

FHA Loans

You can acquire an FHA loan with as little as 3.5% down, and the Federal Housing Administration backs these loans. Designed for people who earn low to moderate-income, FHA loans have fewer eligibility requirements than VA and USDA loans.

To be accepted for an FHA loan, you must have plans to live in the home you’re purchasing as your primary residence, buy a property that meets livability standards, and move into the address within 60 days of closing.

It’s worth noting that you’ll be required to pay for insurance and mortgage for the lifetime of the loan if your down payment is less than 10%. Many people acquire an FHA loan and refinance their property to a conventional loan once they’ve built 20% equity. This allows them to eliminate lifetime mortgage insurance requirements.

Home Buying Assistance Programs

Are you still wondering how to buy a house with no money? VA and USDA loans are your main options for zero cash down buying. However, the following programs can help you get on the property ladder, as long as you meet their criteria.

Fannie Mae or Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored enterprises that set borrowing guidelines for loans that they are willing to purchase from conventional lenders on the secondary mortgage market.

By using these programs, you can acquire a conventional loan with just a 3% down payment. However, you must have good credit and financial history and a credit score of 620 or higher. Therefore, these programs are best for borrowers that have strong credit and can afford the minimum downpayment.

For Fannie Mae and Freddie Mac loans, you’re required to pay for private mortgage insurance (PMI) if your down payment is 20% or less. However, you can request to have your PMI cancelled by your lender once you have paid down your mortgage balance to 80% of your home’s current appraised value. PMI will automatically fall off when you have reached 78% LTV (loan-to-value) level.

Good Neighbor Next Door

The Good Neighbor Next Door program is a U.S. Department of Housing and Urban Development initiative that provides housing aid for emergency medical technicians, firefighters, law enforcement officers, and teachers.

Those that qualify can receive as much as a 50% discount on a property’s listed price in select revitalization areas. Search through the properties available in your state on their website. Bear in mind, before you apply for this program, you must commit to living in the property for a minimum of 36 months.

There are a wide range of home buying assistance programs available, with their eligibility criteria changing from state to state in some cases. The U.S. Department of Housing and Urban Development website has a comprehensive list of programs available.

What are Down Payments and Do I Really Need One?

Down payments are sums of cash required as upfront payments when making a large purchase like a car or a home. They are expressed as a percentage of the item’s total value. For instance, a 10% down payment on a $250,000 home would be $25,000.

When you apply for a mortgage to purchase a property, the down payment is your deposit towards the purchase, representing your initial stake of ownership in the home. Your lender will supply the rest of the money required to buy the property.

For the majority of mortgages, lenders require a downpayment. However, as mentioned above, there are exceptions to this rule. If you are ineligible for USDA or VA loans, you’ll need to provide a down payment if you want to purchase a property.

Although zero or low-downpayment mortgages can accelerate your ability to purchase a home, placing large down payments is advantageous. This is because:

  •  You’ll be provided with a better mortgage interest rate.
  •  There will be lower ongoing and upfront fees.
  •  You’ll have lower monthly mortgage payments.
  •  You will have increased equity in your home, straight away.

In the eyes of the lender, lower down payments carry more significant risks. These risks are reduced by government-backed mortgage programs like VA, USDA, and FHA loans. If a borrower defaults on these loans, the associated government agency will pay the lender the borrower’s amount owed.

Now What?

You’ve seen the options for buying a house with no money down and the programs that can support low-payment mortgages.

Below are some resources to help you access these loans and programs quickly and efficiently.

  •  United States Department of Agriculture Loan Website
  •  Veterans Affairs Loan Website
  •  Federal Housing Administration Website
  •  Fannie May Website
  •  Freddie Mac Website
  •  Good Neighbor Next Door Initiative Page
  •  Free Mortgage Calculator
  •  Free Loan-to-Value Calculator

Reali has the Solutions You Need

Now that you know how to buy a house with no money , you may still require a small loan if you’re ineligible for USDA and VA support.

Here at Reali, we can get you pre-approved and funded for a super-fast home loan . Or, maybe you’re looking to refinance? Our team of finance experts can lock in low mortgage rates in minutes, helping you to save on monthly payments and providing cash to help remodel your home or clear mortgage debts.

Our mission is to make the home buying process simple, stress-free, and affordable. Check your rates and take a step toward financial freedom today.