Zero Down First Time Home Buyer Loans
It's a big piece of the puzzle when it comes to buying a house: down payments. They're required on almost every mortgage loan out there right now. With that said, understand that there are first time home buyer loans that do NOT require the buyer to have a little “skin in the game.” We'll get to those on just a minute. First, let’s look at what down payments could cost a first time home buyer.
Consider a $70,000 house with a 5% down payment. You would borrow $66,500 from the lender, add $3,500 of your own money, and give the $70,000 to the seller. Because a down payment does not include closing costs or cash-to-close, you will also need to have other money at the time of closing. This could mean that you need around $9,000 total for the 5% down payment and the money for closing.
What is Cash-to-Close?
The money you need at the closing table will include a down payment, closing costs and cash-to-close (or pre-paids). Think of it like different buckets. There’s a bucket for the seller (which is where the giant mortgage check and your down payment goes) and one for the mortgage lender (which is where the rest goes). In the mortgage lender bucket you will put the closing costs (fees paid to the mortgage lender for processing and funding your loan) and pre-paids. The pre-paids cover things like your escrow account, so your mortgage lender can pay your property taxes and homeowners insurance.
Now, the down payment can come from your own savings account, but the money could also come from your 401(k) or as a gift from an eligible family member (parents, children, siblings). Gift funds may be considered a higher risk by the underwriter of your mortgage. This means if your file is “iffy” (like a lower credit score or income issues) the gift funds could be the difference between an approval and a denial. So the best bet is to save every dollar you can for the down payment on your first home.
What Are the Zero Down First Time Home Buyer Loans?
VA Home Loan
The VA home loan option is only available to military veterans, and it requires no down payment. This is one of the most successful mortgage programs out there (one of the lowest default rates), while financing 100% of the home purchase price. Again, it comes with the requirement of military service, but it otherwise mirrors the FHA requirements pretty closely.
USDA Rural Development Mortgage
The U.S. Department of Agriculture guarantees this mortgage to help get home buyers out of the city and into more rural areas. It’s called the USDA Rural Development mortgage. Now, this doesn’t mean you’re buying a farm or living way out “in the sticks.” While you certainly can move to a very rural area, RD loans actually cover a lot of areas near cities. You could look at a home in a village, small town or township and be within the USDA guidelines. The bonus to this program is that it’s a 100% financing mortgage. You will need no down payment to buy a house under the rural development umbrella.
Learn more about down payments and first time home buyer loans with "The Essential Guide to Buying Your First Home" at the button below. The concise eBook is free to download, and will help you in the home buying process.
(dollar puzzle: Flickr user Images of Money)