It’s commonly assumed that home buyers need a significant amount of money saved for a down payment, closing costs, and other expenses that come with buying a home. However, it is possible to buy a home with little to no money down. Though it’s always wise to put away whatever you can before investing, you don't need to save a large sum of money to make your dream of homeownership a reality. In this guide, we'll explore some of the top tips and strategies for buying a house with no money, so you can take the first steps toward achieving your dream of owning a home regardless of your financial situation.
Buying a Home Without Putting Money Down
In order to buy a home without putting money down upfront, buyers will need to apply for a loan that doesn’t require a down payment. For active-duty or veteran military, VA loans
are the perfect option. Backed by the Department of Veterans Affairs, VA loans don’t require a down payment and are usually flexible on credit score requirements.
For those not affiliated with the armed forces, the U.S. Department of Agriculture offers a program that provides 100% financing for eligible homebuyers who live in rural areas, a program known as the USDA Rural Development Guaranteed Housing Loan Program. Additionally, many states and local governments offer down payment assistance programs to help first-time homebuyers with their down payment and closing costs. In some cases, the seller may be willing to finance the home purchase as well, acting as the lender and allowing buyers to make payments directly to them versus going through a bank.
Using FHA Loans to Invest with a Low Credit Score
For buyers with some money saved for a down payment, the Federal Housing Administration offers loans requiring a down payment of only 3.5%. FHA loans are government-backed and designed to make homeownership more accessible to buyers who may not qualify for conventional mortgages. In addition to lower down payment requirements, FHA loans have more flexible credit requirements and generally lower interest rates than conventional loans, making them a popular choice for first-time homebuyers and investors.
Improving your score
Although FHA loans are more forgiving when it comes to credit scores, improving your credit score as much as possible before applying for any loan is always a good idea. This can help you secure a lower interest rate and better loan terms no matter who you borrow from. By paying down debt, making on-time payments, and disputing any errors on your credit report, you can boost your credit score before you apply for a loan.
Using a co-signer
If your credit score is still low, you may consider getting a co-signer with a higher credit score to help you qualify for an FHA loan. A co-signer can help improve your chances of getting approved and can also help you secure a lower interest rate.
Purchasing a fixer-upper
FHA loans are available for both move-in ready homes and fixer-uppers, but if your credit score is low, you may want to consider investing in the latter. Fixer-uppers offer lower purchase prices and can allow buyers to build more equity by making improvements to the property.
Working with an FHA lender
An experienced FHA lender can help you understand eligibility and the necessary steps to secure an FHA loan. By partnering with an experienced FHA lender, you can increase your chances of being approved for a mortgage that works for you and your budget.
Using a Fannie Mae HomeReady Mortgage
Fannie Mae HomeReady Mortgages
are another strong option for those wondering how to buy a house with no money or a lower down payment. HomeReady mortgages require as little as a 3% down payment and are more flexible regarding credit history and nontraditional credit profiles. HomeReady mortgages also offer lower mortgage insurance rates than other low down payment loan options, which will always save buyers additional money over the long term.
Finding “3 Percent Down” Mortgages
If you have limited funds for a house, "3 Percent Down" mortgages could be a viable option. Like Fannie Mae HomeReady mortgages, these loans allow buyers to purchase a home with as little as a 3% down payment. The loans are typically backed by Fannie Mae or Freddie Mac, and the eligibility requirements may include a minimum credit score, income and debt-to-income ratio, and homebuyer education courses. Though there may be restrictions on the types of properties that can be purchased with these loans, buyers looking for primary residences are eligible.
Using Home Possible Mortgages with Freddie Mac
Home Possible mortgages
with Freddie Mac offer flexible credit terms, including nontraditional credit options and their appealing 3% down payment option. First-time homebuyers who complete a homeowner education course may also be eligible for lower mortgage insurance premiums. Buyers must meet Freddie Mac’s income limits and property location requirements to qualify for a Home Possible mortgage. However, these can vary based on the buyer’s location and the type of property they’re purchasing.
The 97 Loan for First-Time Buyers
The 97 loan, also known as the Conventional 97, is another mortgage product Fannie Mae offers that allows borrowers to purchase a home with a 3% down payment. Buyers should remember that lower down payments will always result in higher monthly mortgage payments and higher private mortgage insurance (PMI) costs. Qualifying for the 97 loan can be more difficult than other loans, as buyers may need a higher credit score.
Knowing there are plenty of options for buying a house with no money can keep your mind at ease as you explore ways to find your forever home in Winchester. If you're ready to learn more, work with Kim Covino & Co
. Their team of experienced real estate professionals can guide you through the process and help you find the best financing options for your unique situation. Contact
Kim Covino & Co today to schedule a consultation and take the first step toward owning your next home.*Header photo courtesy of Shutterstock