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Looking for a No Down Payment Mortgage? Here are three options

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Sometimes all that separates you from home ownership is a down payment. If you have a steady income, faithfully pay your bills, and are up to the challenge of owning a home, here are three mortgage types that don’t allow for a down payment.

1. VA loan

Service members, former service members and their spouses are eligible for mortgages backed by the US government. VA loans offer a low interest rate and no down payment.

Sure

VA loans are provided by private lenders, including banks, credit unions, and private mortgage lenders. Although the Veterans Administration does not provide loans directly, it does support them. In short, if you fail to make payments, the VA will indemnify the lender. This collateral is the reason why lenders are willing to offer favorable terms including loans without down payment.

Benefits

Getting into a VA home is just the first benefit. Once you’ve gotten in and built equity, VA loans provide cash refinancing. They also provide a Simplified Interest Rate Reduction Refinance Loan (IRRRL) for people who bought their homes when interest rates were high, but now want to take advantage of low VA loan rates. Finally, VA loans help veterans with a permanent service-related disability build or purchase a home modified to accommodate their disability.

Eligibility

If you meet one or more of the following criteria, you are eligible for a VA mortgage:

  • Served 90 consecutive days of active wartime service
  • Served 181 days of active peacetime service
  • Have six years of service in the National Guard or in the reserves
  • Are the spouse of a member who died in the line of duty or due to a service-related disability.

How to register

To apply for a VA loan, you first need a Certificate of Eligibility (COE). Request your COE online or by mail. If you prefer to apply by mail, download Form VA 26-1880, complete it and send it to the address on the third page of the form.

Once you have your COE in hand, it’s time to find a lender. The best mortgage lenders are very familiar with the VA process, but if any questions arise, you can call the VA Regional Lending Center at 877-827-3702.

2. USDA

Another mortgage that does not require a down payment is offered by the USDA program. While USDA loans have traditionally been associated with rural properties, the definition has been broadened.

Sure

The United States Department of Agriculture (USDA) offers the Section 502 Secured Loan Program with 100% funding. The program is designed to help low and middle income households buy a home in eligible areas. Although these areas are historically referred to as “rural,” USDA loans are also available on properties in small towns and suburbs.

Without money, borrowers can buy, build or renovate a house. The USDA even allows eligible buyers to relocate homes to an eligible area.

Benefits

For low- and middle-income families, this program offers several impressive benefits, including:

  • No down payment
  • Competitive interest rates
  • Low cost mortgage insurance
  • Ability to incorporate closing costs into the mortgage

Eligibility

To qualify for a USDA loan, you must:

  • Have a minimum credit score of 650
  • Use the funds to finance your primary residence (it cannot be a working farm)
  • Buy a house located in a USDA eligible area

How to register

These seven steps make it easier to apply for a USDA loan:

  1. Use a mortgage calculator to figure out how much you can afford
  2. Find a USDA Approved Lender
  3. Complete an application with the lender of your choice
  4. Work with a real estate agent to find a USDA approved home for sale
  5. Make an offer on the house
  6. Go through the subscription and final approval of the loan
  7. Close your loan

3. Owner financing

An owner-financed property can benefit both the seller and the buyer. For the seller, carrying the mortgage on a house may offer a higher rate of interest than he could earn from other investments. For a buyer with no money to put on a home, an owner-financed property represents a path to home ownership.

Sure

Let’s say a homeowner doesn’t have a mortgage and wants to sell their property. They have the cash on hand to make their next move, whether it’s buying another home or traveling the country in an RV. If they sold their house outright, they could invest the money, but with current mortgage rates so low, they may earn more by carrying the mortgage on their house.

Rather than making a monthly payment to a bank, the buyer makes a monthly payment to the seller, and the house acts as collateral as it would if the buyer financed the purchase through a bank. This means that if the buyer misses payments, the owner can repossess the house, sell it and recoup its loss.

Benefits

Homeowner finance agreements can benefit all parties, especially if everyone is willing to work together. Here are some of the potential benefits:

  • The buyer can get a mortgage without a down payment: While some sellers require a down payment, others do not. In all cases, the deposit is negotiable.
  • The seller can earn a higher interest rate: Let’s say the best short-term mortgage rate a seller finds is 3%. By charging 7% or 8% on the mortgage note, they get a higher interest rate for a set number of years.
  • Homeowner financing gives the buyer time to build their credit rating: When the seller reports their on-time payments to the credit bureau each month, the buyer’s credit score is improved.

Eligibility

Because the owner is acting as a lender, the eligibility requirements are up to them. They can check the buyer’s credit score, ask for proof of income, or set their own criteria.

How to register

The trick is to find an owner funded property. Here are a few places to check out:

  • With your real estate agent
  • On a public MLS website
  • On a sell by owner (FSBO) website
  • By friends and family

If you’re ready to make a monthly mortgage payment, consider one of the zero down payment options available. Once you step in the door as a homeowner, you are on your way to building equity.



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