November 18th, 2018 10:23 AM by Jackie A. Graves, President
The city where you plan
to buy a home may offer loans with no money down.
Can you buy a house with
no down payment?
Yes, you can.
“Paying 20% down is, quite frankly, a
myth,” says Karen Hoskins, vice president at NeighborWorks and
bearer-of-great-news. “Most buyers pay only 5% to 10% down — some even pay
The key to
finding a no-money-down home loan is finding the right assistance
program. And there’s no shortage of them if you qualify.
roughly 2,500 home-buying programs tracked by Down Payment Resource, a
nationwide database of home ownership programs that helps match buyers and
properties, 69% offer down payment assistance.
The average amount of assistance from those programs nationwide tops $11,000 —
though amounts would vary greatly between disparate cost-of-living markets like
Southern California and Iowa, according to Down Payment Resource. Some 87% of
properties are eligible for some kind of assistance.
Here’s where to find the
financial help you need to buy a home:
they’re at the national level, they’re often the ones people turn to first:
FHA. Helps first-time
buyers — especially
those with lower credit scores — buy
with down payments as low as 3.5% (low-down).
Rural Development Loans. For
low-to-middle income families buying homes in towns with populations of 10,000
or fewer people or that are “rural in character.” That means some areas with
bigger populations have been grandfathered into the program (zero down).
VA Home Loans. Helps
service members, veterans, and eligible surviving spouses (zero down).
Government-sponsored enterprises. Fannie Mae and Freddie Mac, which set the rules for mortgages
nationwide, both offer programs allowing eligible buyers to put down as little
as 3% of the purchase price. That’s even lower than FHA (low-down).
aren’t the only options. Too often, buyers neglect to look for help locally,
which may offer even better assistance.
homeowners are vital to a community’s stability and economic health, so
municipalities and states have a vested interest in helping you buy a home —
even if you don’t have the down payment.
vary based on the agency or the community requirements, but assistance programs
Have income limits
Have purchase price limits
Require participants to take
home buyer counseling
requirements — like whether you’re a first-time buyer, how good your credit is,
where you have to buy, whether you have to rehab the home, or if you need to be
part of a group, such as active military, veterans, or teachers — depend on the
comes in these forms (Note: Specific programs named as examples below may
change or close over time.):
Forgivable loans and grants. These are literal
gifts for some or all of the down payment and closing costs, which means
there’s no recorded lien or mortgage on that money. Eligibility and terms will
vary and funds are limited. Example: The National Home Buyers Fund, Inc. offers down
payment and closing cost assistance up to 5% of the mortgage loan amount as a
gift or zero-interest second mortgage that’s forgiven after three years.
Second mortgages. As the name suggests,
these loans are in addition to your primary home mortgage. They take a variety
of forms, and the differences can be confusing. The most important thing isn’t
the terminology, though; it’s knowing they exist, because they can offer substantial
down payment assistance (DPA) and favorable terms.
Soft mortgages. These
DPA loans are deferred for some period of time based on a particular program’s
requirements. Occasionally, they’re forgivable. Example: The Home
Purchase Assistance Program in Washington, D.C., defers
payments for five years for moderate-income borrowers.
Silent seconds. DPA
repayment is deferred until you sell
or refinance. The city of Napa, Calif., for instance, offers
eligible first-time buyers up to $58,000 or 30% of the purchase
price, whichever is less, at 1% interest. The loan can be deferred for the
30-year term if you stay in the home.
Hard seconds. You
start paying off the DPA loan as soon as you close. Programs offer a variety of
loan amounts and interest rates (some below-market) depending on your
First mortgages at below market interest
and state agencies subsidize a mortgage to make it more
affordable for the buyer by reducing the interest rate, or offering 100%
financing (which means no down payment), and sometimes waiving mortgage insurance, too.
Mortgage credit certificates (MCCs). Issued by some state or
local governments, MCCs allow taxpayers to claim a tax credit (Form
8396) for some portion of the mortgage interest
paid during a given tax year. A credit, unlike a deduction, is a
dollar-for-dollar savings on your tax liability.
have to itemize to use this credit, according to Greg Zagorski, senior
legislative and policy associate at the National Council of State Housing
Agencies. It’s capped at $2,000 per year, and you can claim it throughout the
life of the loan.
A cool tax
benefit of MCCs is that if your tax liability one year is lower than the
credit, you can roll over the amount you can’t claim to the next year. If you
make more the next year (and therefore have more tax liability), you can claim
what you couldn’t before.
Housing counselors, who are
free (!) and can discuss what mortgage options are best for you, are available
through housing finance agencies and organizations like NeighborWorks.
Find HUD-approved housing counselors by state here. Or
contact your state’s housing finance agency.
Check your eligibility for a
host of DPA programs at Down Payment Resource.
Find a good mortgage broker,
who should have information about down payment programs in your area and can
help you determine your eligibility.
Talk to your real estate agent.
A final note: When you put down
less than 20%, you pay private mortgage insurance (PMI) each month to protect
the lender’s interest. On the other hand, not having to save up for a 20% down
payment can get you into a home a lot faster. And you can cancel PMI (except for FHA
loans) once you reach 20% equity.
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