Buying a home is one of the biggest — and most exciting — financial decisions in life. But what if you can cover the monthly costs of owning a home, but don’t have money for a down payment? It is possible to buy a house with no down payment. Read on to find out how.
Can I get a mortgage with no down payment?
Yes — but not with a conventional mortgage (usually). Here are some of the ways you can get a mortgage with no down payment:
- If you’re part of a credit union, you may be able to get a no-down-payment mortgage with the credit union.
- If you’re a veteran, you may be able to get a VA loan with zero down.
- If you’re buying a home in a rural area, you might qualify for a zero-down USDA loan.
For a conventional loan, you generally need a 20% down payment. Some lenders accept a lower down payment — 10% or even 5%. If you don’t have funds available for a down payment, look at different loan products that help you buy a home with no money down.
What options do I have for a mortgage with no down payment?
If you don’t have money for a down payment, consider these home loan options.
A USDA loan allows you to buy a home with no down payment. To qualify, you must be a low-income borrower buying a home in a designated rural area. The home must be your primary residence, and your monthly mortgage payment (including principal, interest, insurance, and taxes) can’t exceed 29% of your monthly income. If you think you’re eligible for a USDA loan, shop around with several USDA lenders to see what offers you receive.
If you’re a U.S. veteran or are the surviving spouse of a veteran, you may be able to get a VA loan. VA loans allow you to buy a home with no down payment, and often have lower interest rates than conventional loans. You pay a funding fee to get a VA loan that totals 1.4% to 3.6% of the loan amount, but you get the flexibility to buy a home without putting money down at closing. It pays to shop around and see what VA loan rates several lenders offer.
Doctor loan programs
Getting a medical degree is expensive, and doctors often pay off medical school loans well into their 20s or 30s. Many medical professionals have a hard time coming up with money for a down payment on a home.
If you’re a doctor, you may qualify for a physician loan, which may allow you to buy a home with a low down payment or no down payment. Some lenders who offer conventional mortgages also offer physician loans, so it pays to look around and see what offers you’re eligible for. One great thing about physician loans is that they generally don’t charge private mortgage insurance. Also, some physician loan programs don’t count medical school debt against applicants.
Credit unions are nonprofit institutions similar to banks that loan money to members. Some credit unions offer mortgages with no down payment, although they typically require that you have an established membership to apply. The upside of a credit union mortgage is that you might pay a lower interest rate than you would with a more traditional lender. The downside is that finding a credit union loan that doesn’t require a down payment can be challenging.
Pros & cons of zero-down-payment mortgages
Getting a home loan with no down payment may seem like a good thing, but there are drawbacks. Here’s what to know.
- You can buy a home sooner, rather than potentially having to wait years to save money to put down.
- You can stop spending on rent. When you own a home, you build equity in it, whereas when you rent, you’re often contributing to somebody else’s mortgage. Also, when you’re a homeowner, you have more loan options for when you need to borrow money (like HELOCs and home equity loans).
- The less money you put down at closing, the more time it takes to build equity (ownership).
- You risk ending up “underwater” on your mortgage. Being underwater on your mortgage means your home is worth less than what you owe on your mortgage. That could spell trouble if you need to sell your home or have trouble keeping up with mortgage payments.
- You may have to pay fees. VA loans, for example, allow you to buy a home with no money down, but you pay a funding fee for the mortgage.
- You may pay a lot of interest over the life of your loan. This is due to taking out a larger loan amount.
Is a no-down-payment mortgage right for me?
A no-down-payment mortgage could make it possible for you to buy a home sooner. If you have a stable job and can cover the cost of owning a home, it could pay to take out a mortgage with no down payment.
On the other hand, if you don’t have a down payment yet because you don’t have a steady job and your income could dip, you may want to hold off on buying a home until you have more financial stability.
Remember, on top of your monthly mortgage payment, there are additional expenses of homeownership to handle, like maintenance and repairs. While you can use a mortgage calculator to see how much you might spend on principal and interest on a home based on your loan amount, it’s important to account for these other costs as well.
If you’re ready to buy a home, it pays to shop around with several lenders and see what offers you get. If you’re new to buying, check out this list of mortgage lenders for first-time home buyers. And if your credit needs work, focus on these mortgage lenders for poor credit.
Buying a home with zero down payment could work out well for you. Just understand the risks and drawbacks before applying for a mortgage with no money down.
View more information: https://www.fool.com/the-ascent/mortgages/zero-down-payment/