Government Backed Loans That Allow You to Buy a Home with Little to No Down Payment
After the mortgage meltdown of 2007 and 2008, lending guidelines have become much stricter. Gone are the days when you can get a loan without documenting your income and assets. If you want to get a home loan now, be prepared to document everything and then some more.
With such strict guidelines, there is a common misconception that a minimum 20% down payment is required to buy a home. There are several loan options that allow you to buy a home with less than 20% down payment. Below I detail some options that are backed by government agencies which would allow you to buy a home for little to no down payment:
These loans are insured by Federal Housing Administration (FHA). It’s the most popular low down payment loan for First Time Home Buyers. FHA allows a down payment of as less as 3.5%. Other benefits include:
- Low Credit Score to qualify (Typically 640, but could be even less depending on the lender)
- The entire down payment can be gifted from a relative or a close friend
- More relaxed guidelines allow for a higher debt-to-income ratios
FHA loan can get a little pricey because of a steep mortgage insurance cost. Also, if you are buying a condominium, FHA lends only on approved condominium projects. Be sure to check with your loan officer if a certain project is FHA approved before making an offer to buy.
This type of loan is insured by Veterans Administration (VA). VA helps Service members, Veterans, and eligible surviving spouses become homeowners. VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan. Some of the benefits of VA loan are:
- True 0% down payment loan. You can buy a house with putting nothing down. You only have to come up with applicable closing cost.
- No Private Mortgage Insurance (PMI) premium requirement
- Closing costs may be paid by the seller
- Funding fees can be added to the loan amount
Note that both FHA and VA loans are available to purchase a primary residence; you do not have to be a first time home buyer.
This loan is guaranteed by United States Department of Agriculture (USDA). Loan is primarily used to help low-income individuals or households purchase homes in rural areas. Applicants for loans may have an income of up to 115% of the median income for the area. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.
These are 30 year loans and requires no down payment.