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No Money Down Home Loans - 2019 Definitive Guide

Written By: Travis Carter : Loan Options

Want to buy a home with no money down but not sure where to start? You came to the right place. In 2019 there are many loan programs available to purchase a home with no money down but you will need to know a few tricks to get to the closing table. 
 
You will need to choose the correct loan program to finance the home and understand how to finance closing costs. If you apply for 100% financing, you could still be required to pay closing costs. This article will show you how to finance closing costs and set you on the right path to homeownership. 
 

 

No Money Down Loan Programs

USDA Home Loans - Rural Development

A USDA loan is a zero down mortgage available to suburban or rural home buyers. USDA home loans are available to low or moderate income home households. Every area has a different income requirement however, the average maximum income for a family of 4 is $80,000 and for a family of 5 you can make up to $105,000. Again, every region is different so make sure you ask what the income limit is for your area. 
 
To check the income limit in your area visit the USDA income eligibility site
 
USDA loans have lower mortgage insurance than FHA meaning you will have a lower payment. The annual mortgage insurance premium for FHA is .85% vs USDA at .35%. The difference may seem small but over thirty years this can make a big difference in the homes affordability.  In addition, USDA requires an upfront guarantee fee to be paid at closing. If the loan is structured properly, the fee can be financed and you will not need money for closing. 
 
USDA loans have geographic restrictions but most of the country is still eligible. The eligibility of an area is determined by the population in the town or city. Although meant for financing in rural areas, as of Jan, 2019 most of the country is still eligible. There are even towns just outside New York City that are eligible.
 
As you can see from the eligibility map, it is likely your home qualifies for 100% financing. Only the darker shaded areas are ineligible for USDA financing. 

 

USDA Property Eligibility map

VA Loans

If you were or currently are a member of the armed services, you could qualify for a VA home loan.  VA does not require a down payment and offers 100% financing on your home purchase. In addition, VA does not require mortgage insurance making it the most affordable loan option available today. 
 
When you close on a VA loan you will need to pay the VA funding fee. The fee can be financed in the loan and will not be an out of pocket expense.
 
VA has more flexible credit requirements than most loans however, every lender has a different minimum credit requirement. When you apply for a VA home loan make sure the loan officer has experience. VA has some unique guidelines in place to protect the borrower but can complicate the process if the bank does not have the necessary experience. 
 
The bank will need to obtain your certificate of eligibility to start the VA loan application.
 
Check the Department of Veterans Affairs website to get your VA certificate of eligibility or give us a call and we will provide this free of charge. 
 
Continued Below

 

About Me

Travis Carter PLattsburgh Mortgage

Travis Carter – Branch Manager

I have been in the mortgage business for over 18 years. Since joining my first mortgage company in 2000, I have focused on providing a better mortgage experience. I have managed and trained 30+ mortgage professionals since starting my career. I specialize in first time homebuyer loans including FHA, VA, USDA, and Conventional financing. My goal is to never stop learning and test new financial strategies so I can pass this knowledge on to my clients.

If you have questions or would like to apply for a first time homebuyer loan, I can be reached at travis@plattsburghmortgage.com 

 

Get Qualified

FHA Loans

FHA loans are technically considered a low down payment program however, the down payment can be in the form of a government grant or gift from a family member.  The Federal Housing Administration was created in 1934 to spread homeownership by offering more flexible credit standards. 
 
FHA backs the loan so that the bank does not have excessive losses if the loan goes bad.  If you have a credit score as low as 500 you could still qualify for FHA.  Only a few lenders will allow this but technically the program does allow for a credit score this as low as 500.
 
A down payment of 3.5% down is needed to obtain FHA financing. Although technically not a “no money down” loan, there are many government grants available to help with the down payment.  Gift funds are also allowed for the down payment. A gift from a relative is acceptable but make sure you follow the very specific documentation requirements. Receiving cash as a gift can make the process much more difficult. If you intend to receive gift funds, be sure to talk to your lender about the documents they will need. 
 
FHA loans have some of the lowest interest rates in the country making your home purchase even more affordable. Although FHA has higher mortgage insurance than USDA and VA, it may be the best option if you do not credit qualify for them. FHA typically accepts a higher than average debt ratio meaning you may qualify for more house by using FHA.

Finance Closing Costs for a True No Money Down Loan

So now you know your loan program options but you will also need to contend with closing costs. In some areas closing costs can exceed 5% of the property sales price. This means that a $100,000 home purchase could have closing costs as high as $5000. Title insurance, homeowners insurance, attorneys, appraisals, and the state transfer taxes are just some of the fees you will be charged.  Fortunately closing costs can be covered by seller concessions (Seller paid closing costs).

 

Seller Concessions

Seller concessions are concessions built into the sales contract so that the seller pays for your closing costs. USDA, VA, ad FHA all allow for up to 6% seller concessions If you are buying a $100,000 but the home has a value of $106,000, you are able to write the sales contract for $106,000 with the seller giving you back $6,000 to pay for closing costs.  If the seller wants $100,000 for the home, offering $106,000 with $6000 in seller concessions should not turn off the seller too much. 
 
It is very important to discuss your need for seller concessions with your bank and real estate agent to make sure the contract is written properly. In the vent seller concessions are not included in the contract, you will need to pay for your closing costs out of pocket. Although no closing cost loans are an option, the interest rate tends to be higher making the home less affordable. 
 
Utilizing FHA, USDA, or VA for your home financing in conjunction with seller concessions will allow you to truly purchase a home with no money down. All too often a lender will not explain the closing costs and not prepare the client properly. 100% financing does not always mean “No Money Down” if you have not negotiated seller concession.  Make sure to look at more than one loan option also. Ask your lender to provide loan comparisons so you can decide which loan product is the most affordable for you.  
Give us a call at (518) 324-5544 if you have any comments or questions about this article. Happy house hunting! 

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