Buying a Home with No Money Down...

Dated: 01/15/2019

Views: 85

Is it possible to buy a house with no down payment?

Yep, you sure can.

The key to finding a zero-money-down home loan is finding the right assistance program that is a fit for your needs.

There are over 2,000 home-buying programs monitored by Down Payment Resource, which is a nationwide database of home ownership programs that help connect buyers and properties, around 70% offer down payment assistance.

The average assistance given by these programs is around $11,000 per household, however the amount will vary depending on the cost of living market in which you are buying in according to Down Payment Resources. Most properties are eligible for some form of Down Payment Assistance, which is why it is important to do your research or have your Real Estate Agent refer you to a Mortgage Lender to assist you.  

Here are a few popular places to find programs to buy a home with zero down:

National Government Programs

Being these are at the national level, they are often the ones people look in to first:

  • FHA. Great for first-time buyers  even more so for those with lower credit scores.
  • USDA Rural Development LoansGreat product for low-to-middle income families wanting to buy a home in a town with populations of 10,000 or fewer people or that are considered “rural areas” (zero down).
  • VA Home Loans. Excellent loans for current service members, veterans, and eligible surviving spouses (zero down).
  • Government-sponsored enterprises. Fannie Mae and Freddie Mac, both offer programs allowing eligible buyers to put down as little as 3% of the purchase price.

As I said earlier, these are the most popular go to sites for home loan programs. Do not let this stop you from checking out local mortgage lenders and brokers as well. They will often times have additional products that may be a better fit for your situation. If you need some recommendations for the Sacramento and San Joaquin, areas contact me here.

State and Local Home-Buying Programs

Responsible homeowners are vital to a community’s stability and economic health, so cities/towns and states entrust in you to buy a home — with or without the means of having the down payment.

Qualifications can vary based on the given agency or the community requirements, however most assistance programs generally:

  • Have income restrictions or limits
  • Have purchase price limits
  • Some may require borrowers to take home buyer counseling

Additional  requirements — Depending if you’re a first-time buyer, how good your credit is, where you are required to buy, whether you have to rehab the home, or if you are required to be active military, veterans, or a teacher — depend on the program.

Assistance comes in these forms (Note: These programs below may or may not change or may become unavailable depending on the programs eligibility timeframe.):

Forgivable loans and grants. These are gifts to cover some of or all of the down payment and closing costs, and will have no recorded lien or mortgage on that money. Eligibility and terms will vary and funds are limited. Example: The National Home Buyers Fund, Inc. Offers down payment and closing cost assistance up to 5% of the mortgage loan amount as a gift or zero-interest second mortgage that is forgiven after three years.

NHF DPA highlights (1):

  • NHF DPA is provided as a Gift or a forgivable Second Mortgage
  • There is no requirement that a borrower be a first-time homebuyer to qualify
  • FICO score requirements and allowable debt-to-income ratios are flexible
  • NHF DPA programs features generous income limits; higher than might be expected
  • FHA, VA, USDA and Conventional Mortgage Loan financing is available
  • NHF DPA is available for both purchase and refinance of a primary residence
  • Sponsored by NHF and available nationwide through Participating Lenders

Second mortgages. These loans exactly what they sound like, they are loans in addition to your primary home mortgage. There is a variety of these loans and they can often times become a bit confusing, which is why you should speak with your Mortgage provider. The important thing is knowing they exist, being they can offer substantial down payment assistance (DPA) and favorable terms.

  • Soft mortgages. These DPA loans are offer an interest rate below the current market rate. They are deferred for a predetermined period based on the selected program’s requirements.
  • Silent seconds. Down Payment Assistance repayment is deferred until you sell or refinance your home. The city of Napa, California offers eligible first-time buyers up to $58,000 or 30% of the purchase price; of course it is the lesser of the two, at 1% interest. One good thing about these loans is as long as you live in the home, the loan can be deferred up to 30 years. Interest on a DPA silent second does not compound, which means the accrued interest is the same every year.
  • Hard seconds. As soon as your home closes, you begin to pay off the loan. These types of programs offer a variety of loan amounts as well as interest rates (with some being below-market) however it all depends on your eligibility.

First mortgages programs that are offered below market interest rates. Some local and state agencies will offer programs that subsidize mortgage to make homeownership more affordable  by reducing the interest rate, or offering 100% financing, and often times has even waived the  mortgage insurance, as well.

Mortgage credit certificates (MCCs)These are only issued by some state or local governments (California CalHFA), MCCs allow taxpayers to claim a tax credit using (Form 8396) for a portion of the interest paid during a given tax year. This is a credit, which is not a deduction; therefore, it is a dollar-for-dollar savings on your tax liability.

If you are a first time homebuyer in California, you will be required to attend a Home Buyer Education course as well as Home Buyer Counseling (more info here).

Finding a Program that is Right For You.

First things first, you should have your finances in order. What I mean by this is clear up any negative reporting on your credit reports (delinquent accounts, collections). I would strongly recommend that you reduce your debt to income ratio as much as possible. Try to get any credit cards under 30% of their limit, pay off car payments if possible, get outstanding medical bills taken care of.

Once you are comfortable with your financial situation, begin to determine what you want out of a mortgage. You need to determine what your max “comfortable” payment would be and the amount if any that you can put down as a down payment. Do you have money for closing costs? Now, you are ready to research programs from lenders, brokers as well as get advice from a Real Estate Agent. Please remember Real Estate Agents sell homes, they are not mortgage lenders nor attorneys that can offer legal advice.

A final note: When you put down less than 20%, you pay private mortgage insurance (PMI) each month to protect the lender’s interest. On the other hand, not having to save up for a 20% down payment can get you into a home a lot faster. And you can your cancel PMI (except for FHA loans) once you reach 20% equity.

Are you interested in purchasing a home in 2019 with little to “no” money out of pocket? If so CLICK HERE to see what options are available here in the Sacramento and San Joaquin Valley areas.

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Cliff Lewis Calbre # 02001465

Born and raised in Northern California Cliff has built many relationships that will last a lifetime. As a husband to a loving wife and a father to three amazing kids, Cliff takes pride in teaching an....

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