Buying a house remains a dream for many when they consider the down payment required. Inflation is steadily increasing, and the housing sector has been hit hard. But with a zero-down home loan, you can still make your dream come true without the need to save up for a large down payment. This article tells you how to go about it:
What Is a Zero-Down Home Loan?
As the name suggests, a zero-down mortgage is what it sounds like—you can get a home loan without making a down payment. Typically, most homebuyers finance the purchase by paying a certain percentage of the price (typically, 20 percent) up front as a down payment and borrow a home loan for the remainder. For example, if you want to buy a house that’s priced at $400,000 and you pay 20 percent ($80,000) as a down payment, you only need to borrow $320,000. The down payment demonstrates to the lender that you’re committed and less likely to default on your loan on account of the up-front investment.
But saving for a down payment is not always easy. It can take years to save a huge sum of money. In the event you lose your job or are unable to work, it may take even longer than anticipated. And the higher the price of the house, the higher your down payment.
In such cases, the option of a zero-down mortgage can be a boon. You can borrow the entire amount you require to buy a house, only needing to pay closing costs. Plus, you also get to purchase your house whenever you want—your home ownership doesn’t have to wait until you are financially well-off. The money you save can be invested elsewhere, which offers you better returns. You leave your savings intact but also get to enjoy the perks of homeownership.
How Can You Get a Zero-Down Home Mortgage?
There are two popular ways to obtain a government-backed zero-down mortgage: VA loans or USDA loans. Each loan has a highly specific set of eligibility requirements you must fulfill. There are also zero-down loans available through individual lenders.
USDA Home Loans
USDA home loans are sponsored by the US Department of Agriculture. These loans are for borrowers residing in specified rural and suburban locations. Here are the three types of loans provided by USDA:
- USDA Direct Loans—extremely low-interest rates for low-income borrowers
- USDA Loan Guarantees—provided by participating lenders at low-interest rates and minimum or zero down payment
- USDA Home Improvement Loans—loans exclusively meant for paying for repairs or improvements of existing houses
Applicants should have a very high credit score, preferably above 640, to qualify for streamlined processing. Those without a high credit score may need to wait a while for approval and even furnish rental and utility payment histories along with their loan application.
Applicants should be purchasing a single-family unit that will be their primary residence. Their total gross income should be less than 115 percent of the median income of the county where they are residing to borrow guaranteed loans. In the case of direct-issue loans, the income limits can be as low as 50 percent of the median income for certain locations.
VA Home Loans
VA loans backed by the US Department of Veteran Affairs are available to those in active military service, veterans, and surviving spouses of a veteran. These loans are structured as lower-interest, zero-down mortgages to make homeownership easier for veterans and their families. They are provided in the form of a home loan guarantee benefit.
While the loans are extended by private lenders such as banks or mortgage companies, a portion of the loan is guaranteed by the VA. In lieu of your down payment, the VA agrees to reimburse the lender should it face any losses on account of foreclosure. This allows the lender to provide the loan on better terms.
The VA provides this loan for buying a house in all parts of the country. The closing costs are also limited, and there is no need for buyers to furnish private mortgage insurance. However, zero down payment is an option only as long as the sale price of the house is at or below its appraised value. Moreover, individual lenders may require the borrower to make a down payment based on their credit profile. Additionally, while the VA doesn’t consider credit score or income to determine eligibility, individual lenders may do so.
Lender Loans
A government-backed zero-down home loan isn’t the only option. Many individual lenders offer no-down-payment programs. Borrowers in good standing can take advantage of many of the benefits of a zero-down loan without needing to meet the location, income, or veteran status of government-backed programs. Benefits may include discounted private mortgage insurance, low or no lender fees, competitive interest rates, and so on.
For instance, Solarity Credit Union offers its Home Now option. It is a zero-down home loan with reduced private mortgage insurance and a waived lender’s fee. Once you clear the quick pre-approval process, you can get up to 100 percent financing at competitive rates. The closing process is completely online, and you can e-sign the documents from anywhere.
Since the loan servicing always remains with Solarity, you don’t need to worry about a new lender every few years. You can also speak to a Home Loan Guide to choose the best option for your requirements.
How Do I Know If a Zero-Down Mortgage Is the Right Choice for Me?
Saving on having to pay a substantial chunk as a down payment is an advantage. This means you will have more savings that you can use during emergencies or for costs that arise after you buy the house. If you are planning to make a down payment at the cost of emptying your savings, it’s worth exploring options and finding lenders who are willing to extend zero-down loans. Do your research to determine which loan programs you’re eligible for and find a loan that meets your needs.
With home prices so high, having the option to make no down payment makes buying a home accessible. If you are keen to own a house and saving for your down payment is the only thing holding you back, explore a no-down-payment option to make your dreams come true.
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