Yes! You can buy a home with no money down! But, where do you begin? Many people believe that they have to have a perfect credit score, great credit and at least 20% down. This is a myth and although it isn’t the easiest transaction you will ever have, it isn’t as hard as you many think.
Where to start?
You may not think so, but the first place to start is with a loan pre-approval. If you are thinking that a credit check will lower your credit score, that is another myth. According to http://consumerfinance.gov, this is not true. You are expected to shop around for the best rate and terms for a mortgage. Therefore as long as your last credit check is within 45 days of your first, your score will not be affected. So, if you go to three different lenders in one week and each lender checks your credit, this will be treated as one instead of three checks.
Why a loan pre-approval first?
A loan pre-approval is going to provide you with the principal information that you need when buying a home. The most important being how much home you can afford. The next important fact is the type of loan program you will be using. Since you want to buy a home with no money down, this is paramount. The type of loan you have will determine how much money you will need for a down payment.
Make sure you tell your loan officer what you want. Describe to him or her what your goals are and don’t try to hide anything. Believe me, once you get into the loan process, everything will come out anyway! It’s okay to have dings. The majority of people have had imperfect credit in their lifetime. Things happen, life happens.
All right, so what about no money down?
Ok, you can afford the monthly payment, but it is hard to save the money for a down payment. What programs are out there to help? Most people have heard of a VA loan for veterans and military personnel. But, there are also loan programs for first responders, teachers and the rest of us.
The VA Loan
As I talked about above, a VA loan is for former and current military personnel. It is a loan that does not require a down payment and if you wish, the closing costs can be rolled into your loan amount. (There’s so much more that we can talk about with a VA loan, but that will have to be another conversation.)
The USDA Loan
I sometimes refer to this loan as a loan for civilians. This is another loan program that does not require any money down. It’s different from a VA loan as you don’t have to have served in the military. There is an income cap on this type of loan though. Depending on where you live, the amount of the cap is different. Your loan officer will be able to give you that amount. Also, not every home can qualify for a USDA loan. So, if you are asking for this type of loan, make sure to provide your loan officer with the address of the property before you make an offer. You can also check for yourself here: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp (Once you accept the property eligibility disclaimer, you will be taken to a United States map to select your state.)
Other Loans
There are many other loans out there to choose from. Sometimes, a zero money down loan program may not be right for you. This is another reason why a pre-approval is so important. Your interest rate, loan terms, closing costs, etc. are all taken into account when choosing the best way to purchase a home.
FHA loans start at 3.5% down and some conventional loans can start out as low as 3% down. The amount will depend on your credit and your credit score as well as a few other factors. The lower risk you are, the lower the amount down will be. Just remember, when you put less than 20% down, there will be mortgage insurance added to your loan payment. (There is a lot to talk about here, but that will need to be in another post.)
No money down restrictions
If you are choosing to go with either a VA or USDA loan, the home itself will need to qualify as well. A possible drawback to a no money down loan is that the guidelines are much more restrictive as to how a home will qualify. The appraiser is going to look for safety, security and soundness. This means no peeling paint, no cracked windows, no rotted wood, no holes in walls or floors, no exposed wiring, no leaking pipes and more. Always let your real estate agent know what type of loan you have been pre-approved for because he/she will be able to help you determine if the house you like qualifies.
If, after reading this, you think you would like to buy a home with no money down, remember that the first thing to do is get pre-approved. By getting pre-approved, you will have provided pertinent information about yourself and your finances to determine if it will be the right loan for you in the long run. You will also want to make sure you are working with a loan officer that is experienced in this type of loan.
Best of luck to you
Best of luck to you in your home buying process. If you have any questions about how to buy a home with no money down, please contact your real estate agent. If you don’t have an agent, please feel free to contact me with your questions. Buying a home should be one of the most exciting and enjoyable things that you do in your lifetime! Visit http://mwtxliving.com to begin your home search.
