You always want to save as much money as possible before looking at homes. However, this is not always an available option. There are certainly many options for no down payment home loans, and you should know about them so that you can make an informed decision on the financial path forward. Here are five options to consider.
1. Am I eligible for a loan from the United States Department of Veterans Affairs (VA)?
The VA offers no down payment loans to eligible parties with an eye to people who have served in the armed forces. Spouses of military veterans are also eligible for the most part. As long as the veteran is honorably discharged, then eligibility is a straightforward process. Active duty military and spouses are also eligible, and so are most people who have served at least six years in the National Guard or Reserve Guars.
The VA gives other advantages outside of 100 percent financing, the first of which is a wider choice of lenders. The VA does not actually give loans; it guarantees them with the full faith of the government in order to lower the risk profile of the borrower in the eyes of private lenders. If a veteran comes into a bank with VA eligibility, bankers are more likely to treat that person like a VIP client.
The expanded lender option comes along with the ability to use intermittent occupancy as well. This is something normally not allowed with no down payment loans. You also gain a waiver on private mortgage insurance (PMI) payments, an advantage that can save a borrower thousands of dollars every year.
2. Am I living in a rural area that is eligible under the United States Department of Agriculture (USDA)Â Section 502 loan program?
A Section 502 mortgage is the no money down program that exists for people who are willing to move to a rural area that is marked for development by the USDA. This program is commonly known as a Rural Housing Loan. Many people overlook the USDA program, mistakenly believing that rural housing is equal to farmland. You do not have to be a farmer or looking into agriculture as a profession in order to use this program; you only have to buy a house in the eligible areas. Many buyers who are looking in suburban areas are also completely eligible.
Not only do USDA borrowers gain the no money down advantage, but you may qualify for some home repairs and improvements to be included in the loan as well. You will pay a fee upfront for these privileges; however, this fee is miniscule compared to the down payment that is normally required.
3. What about the USDA Single Family Housing Guaranteed Loan Program?
This is another program that is with the USDA that is focused on low and moderate income households in general. Although the Rural Housing Loan is not only for rural areas, the Single Family Housing Guaranteed Loan Program expands the eligible areas even further. Borrowers may purchase houses that are in college towns that are fully metropolitan by any standard. These towns include, but are not limited to, State College in Pennsylvania and Christiansburg in Virginia. There are some areas of New York and San Diego that are also eligible.
4. Have I tried the Navy Federal Credit Union program?
Many local credit unions will actually make deals that are quite advantageous to the borrower, some of which may even be no down payment loans. As the largest credit union in the United States, the Navy Federal Credit Union has the reach and the business volume to stay secure even as it underwrites no down payment loans for eligible borrowers.
The Navy Federal Credit Union program is limited to current active duty military, military civilian employees and the United States Department of Defense, and some close family members of those individuals.
The zero money down program of the Navy Federal Credit Union outpaces even the VA’s program. The upfront fee that the union takes to initiate the loan, known as a funding fee, is much less than the funding fee of the VA: You will only pay 1.75 percent as opposed to around two or three percent with the VA. In many of its other features, the Navy Federal program is actually similar to the VA. You do not have to pay PMI, nor do you have to substantiate a consistent residence.
5. What about a joint Federal Housing Administration (FHA) loan with a separate down payment assistance program?
The FHA is another government insurance program that is made to reduce the risk profiles of home borrowers at private institutions. Although getting a zero down mortgage is possible with the FHA, it usually gives away low down payment mortgage loans. However, even if you are not eligible for a no down payment FHA loan, you can take advantage of a separate down payment assistance program.
Down payment assistance programs can work alongside government programs to reduce your out of pocket costs up front to zero. You will be responsible for some other upfront fees in order to make this happen; however, these fees do not compare to the size of the down payment that is usually required for the loan. Your credit will also be scrutinized much less because of the protection of the government.
2 Point Highlight
Not only do USDA borrowers gain the no money down advantage, but you may qualify for some home repairs and improvements to be included in the loan as well.
The upfront fee that the union takes to initiate the loan, known as a funding fee, is much less than the funding fee of the VA: You will only pay 1.75 percent as opposed to around two or three percent with the VA.
