If you want to buy a home in 2017 but don’t have the money for the down payment, you may qualify for 100% financing home loans. Some homebuyers may wonder whether mortgages that cover the entire cost of buying a home still exist, especially after the 2008 mortgage crisis. Surprising as it may be, a few such loan programs still exist, which means you can start shopping for a home without first saving a down payment.
The best news of all is that both first-time homebuyers and current homeowners may be eligible for several government-sponsored, 100% mortgage financing programs. Read on to learn about 100% home financing for which you may be eligible in 2017. You could be moving into a new home this year, bringing little or no money to the closing table.
The No Down Payment Mortgage Explained
Banks consider mortgages to be risky business, and a down payment usually ensures that the borrower will repay the loan. This assurance is based on banking industry studies showing that borrowers who make down payments have a higher probability of repaying their loans. The evidence that individuals who make down payments are more likely to repay their loans is so strong that some lenders consider having a down payment more important than having a high credit score.
For this reason, some types of mortgages, such as conventional mortgages, require borrowers to have a $20% down payment for application approval. This means that lender finances only 80% of a home’s cost. Some lenders offer options for lower down payments, financing a bit more of a home’s purchase price, but the borrower must pay insurance, such as private mortgage insurance (PMI), on top of principal, interest and taxes on a monthly basis. Insurance covers the lender if the borrower defaults on the loan.
Zero down home loans work differently: The government guarantees the mortgage even if it covers the entire cost of a home, meaning the government compensates the lender should you default. The following types of government-backed loans require 0 down payment.
Zero-Down Mortgage: USDA Home Loan
You may live in a rural area, which means you may quality for a 100% financing mortgage insured by the United States Department of Agriculture. This mortgage program, created as a rural development program to spur homeownership, has helped millions of Americans purchase homes since 1949. USDA’s well-established, low-interest-rate mortgage program attracts borrowers due to its lenient qualifying standards.
Your income cannot exceed a certain amount to qualify for a USDA loan, although it needs to be high enough to make your mortgage payment. Also, when shopping for a home, any properties that are candidates for this type of financing must fall within geographic areas designated as rural by the USDA. While large tracts of farmland may come to mind when you think of rural areas, you may find it surprising that some technically rural areas are located near bustling cities.
Sellers can also pay your closing costs when you finance a home purchase with a USDA-backed loan. Closing costs run as much as 3% of the purchase price, but you’ll bring nothing to the table if the seller is willing to pick up those costs. You can finance the USDA’s 2% upfront fee into your mortgage as well. You’ll also pay about $33 for every $100,000 you borrow, a fee the USDA collects to fund its mortgage program. The bottom line is that it could cost you less to move into a home you finance with a USDA loan than to rent an apartment.
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Home Loans with No Down Payment: VA Loans
Approximately 23 million Americans may qualify for Department of Veteran’s Affairs-insured mortgages, commonly referred to as VA home loans. Active duty U.S. Armed Forces members, veterans, reservists, and surviving spouses qualify for this 0% down mortgage when they meet certain eligibility requirements. You may wish to do some checking to find out if you qualify for a VA loan to take advantage of this no money down home loan program.
VA-insured loans make attractive 100% financing options because they carry low interest rate rates; borrowers also do not have to pay mortgage insurance as they do with other government-guaranteed loans. Some lenders have lenient qualifying standards for VA loans, so you may qualify with a credit score as low as 620; most lenders require VA loan borrowers to have scores of 640 or higher. Low interest rates and no mortgage insurance can make your monthly mortgage payment affordable, even if you bring no cash to the closing table and finance your closing costs.
No Money Down Mortgage: FHA Loans
Lenders require first-time homebuyers to put 3.5% down on Federal Housing Administration-insured loans. So on a home priced 200,000, the buyer typically should have $7,000 for the down payment. A little-known FHA rule, however, provides a workaround to FHA’s down payment requirement.
FHA guidelines allow you to use a cash gift as your mortgage down payment. Qualifying gift sources include:
- Nonprofit organization
- Family member
- Fiance
Though not technically a zero-down loan, finding someone who qualifies as a gift source to give you the money you need for your mortgage down payment lets you turn your FHA loan into a zero-down mortgage.
Also, if you’re a teacher, police officer, or other public employee you may qualify for FHA’s Good Neighbor Next Door mortgage program and make a down payment of just $100 to buy a home. Good Neighbor Next Door homes typically are foreclosures located in neighborhoods that would benefit from professionals such as teachers and police officers moving into the community.
Buying a House with No Down Payment
Lenders do charge fees on no money down home loans, even when the loans cover 100% of the home price. Typical closing costs include, but are not limited to:
- Credit reports
- Appraisal
- Mortgage discount points
- Title search fees
- Courier fees
- Homeowner’s insurance
As a borrower, you’re responsible to pay those fees at closing, which can add up, depending on the amount of money you plan to borrow. You can cover these costs by asking the seller to pay them. Some sellers agree to pay a buyer’s closing costs upfront as an incentive to buy their house.
To ensure the seller knows you want closing cost help, talk to your real estate agent before you go house hunting. Though it may be challenging to get sellers to pay your closing costs in some real estate markets, you agent can show you homes where the sellers are offering closing cost assistance and help you negotiate enough money to cover the entire expense.
How to Buy a Home With No Money Down in 2017
To answer the question, “Can I buy a house with no down payment?” the answer is yes. Now that you know about mortgages with no down payment, start making plans to buy your dream home this year. Contact a 100% mortgage financing expert to start your loan application and get a mortgage pre-approval letter. Remember, the sooner you apply for 100% financing, the sooner you can move into your new home.