Finding a mortgage with a low down payment or no money down can make the home-buying experience much more enjoyable. If you want to buy a house with no money down, you can apply for particular loans that do not require a down payment. Low down payment alternatives are also prevalent.
What Is a No-Down-Payment Mortgage?
A zero-down mortgage means you can begin the monthly cycle without making a down payment. If you’re looking to buy a home with a limited budget, the thousands of dollars a loan provider requires can seem daunting. Many people estimate that they need to save 20% of the total cost before applying for a loan when, in reality, a large sector of homebuyers put only 5% of their home’s total cost down.
Private Mortgage Insurance
One crucial aspect to keep in mind is private mortgage insurance (PMI). Your lender recalculates your PMI’s cost every year based on the current amount you owe. As you pay off your loan, the insurance’s price decreases.
How much you pay for mortgage insurance and when you pay it varies by the type of loan you apply for, and its cost gets added to your mortgage. You can work with lenders to discuss PMI costs and your monthly mortgage rate.
Mortgage insurance helps you find a loan much faster, especially when you apply for a loan with little to no down payment. Your PMI ends after your equity is over 80%, and you can request that your loan insurer removes PMI when you reach that point.
Zero-Down Mortgage Options
Avoiding down payments can be helpful for home buyers, especially first-time home buyers. Currently, there are two options different for mortgages with no down payment. Each has specific qualifications that you must meet to obtain the loan.
Veterans Affairs Service Loans
The U.S. Department of Veterans Affairs (VA) supports these loans. You may qualify if you are an active-duty service member, a member of the National Guard, a veteran or the spouse of a deceased veteran. You get a loan through a private lender, and the VA backs it.
Instead of making a down payment, you pay a service fee to the VA to loop the insurance into the total loan amount. You also do not have mortgage insurance payments with a VA loan, as the service fee covers that cost.
The United States Department of Agriculture (USDA) backs these loans for growth in rural and suburban areas. These loans only cover single-family residences, and working farms don’t qualify. You may receive one of these loans if you fall within the USDA’s map of locations.
Recipients can pay USDA loan insurance upfront and alongside their mortgage. You can also loop the upfront payment into your monthly rates instead of putting a down payment on insurance.
More options include a low down payment so you can put some money down without saving for months. A larger down payment fulfills more of your home’s initial cost, but you can look for the option that best fits your budget.
Federal Housing Administration Loans
People with low-to-moderate income can apply for Federal Housing Administration (FHA) loans, which insure loans for households that qualify.
You can pay as little as 3.5% on a down payment through the FHA. Buyers who put less than 10% down must pay for mortgage insurance. Still, homebuyers know the FHA for its flexibility with credit scores. If your Fair Isaac Corporation (FICO) credit score is low for a reason you can explain, you may be able to secure FHA insurance.
Two leading government-sponsored enterprises (GSEs) fund conventional loans:
- Fannie Mae: The Federal National Mortgage Association
- Freddie Mac: The Federal Home Loan Mortgage Corporation
These two organizations buy up loans that lenders make, so they have more funding to provide more loans. These loans often come as 15- or 30-year loans. The down payment is usually 3%, so you can still put less money down.
Find Your No-Down-Payment Home Loan With CIS Home Loans
If you’re ready to become a homeowner, finding a quality loan provider is the first step. At CIS Home Loans, we offer a variety of loan options to help you afford your dream home and stay within your budget. Contact CIS Home Loans today to finance your home with a team of experts. We will work with you through the entire process. Your confidence in us will make buying a home an exciting journey.