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No Money and Low Down Payment Purchase Options

The traditional down payment for a house has historically been 20 percent down. Does it seem intimidating to purchase a home with the standard 20 percent down payment? Would it seem easier with no money down? It may be possible through zero down home loans. Through a no down payment mortgage or a mortgage with a down payment as low as 3 to 5 percent, you don’t have to be as concerned about how much of a down payment is required.

Buying a house is a big investment. With home mortgages though, you can pay a smaller amount as a down payment. And the rest of the payments are scheduled over the term of the loan.

When buying a house, a typical down payment requirement for the mortgage is stated as a percentage. The percentage varies by loan program.  But you can explore a variety of programs and you only need to match your needs and qualifications.

Do You Fit Here?

The required down payment for home loans can range from zero to 20 percent. This depends on both the lender and the qualification of the borrower.

Government and private organizations offer down payment assistance. No money and low down payment loans are available in the market, plus no-interest and forgivable loans for certain situations.

Are you qualified for a low down payment?

How much down payment is best for you? This uncertainty can make some buyers reluctant to purchase a property.

Credit Standing

Lenders assess your credit standing as part of the process. Borrowers with at least 620 credit scores can qualify for many mortgages, although the terms might not be as favorable.  Some zero to low down home loans can have more lenient credit qualifications, depending on the loan program.  These requirements will be discussed below.

DTI (Debt-to-income) Ratio

A borrower’s DTI ratio is a vital requirement in the lending process. DTI refers to the ratio of debt payments divided by monthly income. A typical DTI ratio is 43 percent and can vary by loan program.

Income History

From a no down payment mortgage to 20% down programs, a borrower’s income history is important. Many zero to low down home loans require your income to be below 80% of the local median income. However, other mortgage programs can allow 120% of the local median income.  And some programs do not have a maximum income limit.

Occupancy

The promise to occupy the home as your primary residence is required for most low to zero down programs.  Lenders view loans on owner-occupied homes as less risky. This qualification will impact for how much the down payment and loan can be approved.

Prior Homeownership

The borrowers’ previous homeownership record may be considered in the loan application. Moreover, some no money down loans and down payment assistance programs require first-time homebuyers.

Education

Some borrowers or loan programs require homebuyer education courses, particularly first time home buyers. Homeownership education can be either in person or online. Consequently, the course will help first time home buyers learn what to expect from the process of purchasing a home.  It also helps set them up for success as a homeowner.

Home Price

The agreed home price must be equal to or less than an appraiser’s stated opinion of the home’s value.  The typical down payment for a house is stated as a percentage of the home price or appraised value, whichever is less.

Guide to Low Down Payment Assistance Programs

Know what to expect when you apply for a zero down home loan. Various regulations are associated with no money down loans.

How can you qualify for a no money down mortgage?

Who?

Who can qualify for zero down home loans and other down payment assistance programs? Based on an Urban Institute report, difficulty in making the down payment is a major reason people don’t own their own homes.

A typical down payment for a house can be more costly than many families can afford.  This can be solved through down payment assistance programs. Your Real Mortgage Consultant with Winner’s Mortgage can help you determine if you can qualify for one of these programs.

Why?

These programs offer assistance to reduce the required down payment and costs needed for a home purchase.

With no money down mortgages, your concerns about having enough for the down payment and costs have a possible solution.  Certainly, the monthly payments must be affordable.  Even more important, avoid lifelong bondage to that mortgage.

With the Winner’s Mortgage Master Plan, an exclusive free gift with your mortgage, you can WIN with your mortgage and not lose like so many people lose, and they don’t even know they are losing.  You expect the best. We demand it!  And that is what you get with the Winner’s Mortgage Master Plan.

How?

Down payment assistance programs are offered by local, state, and national governments.  Doing online research and interviewing lenders can be time-consuming and frustrating.  Your dependable Real Mortgage Consultant with Winner’s Mortgage can help you choose the program tailored to your needs.

Down Payment FAQs

To serve as your guide, here are some of the typical FAQs on a down payment for a house loan.

What is the required down payment for a home mortgage?

One of the common questions for mortgages is how much the down payment is. This depends on the program, property, and lenders you choose. Here are some of the down payment amounts from zero down home loans to low down payment mortgages.

  • USDA Loan & VA Loan – Zero down payment
  • HomeReady, Home Possible & Conventional Mortgages – 3 percent
  • FHA Loan – 3.5 percent
How can I buy a house without any money down?

Buying a home with no down payment is possible with the right circumstances and the right program.

Learn if you can qualify. The best way to do that is to Get Started with your Real Mortgage Consultant from Winner’s Mortgage. Get the facts and get the job done!

Do I need to pay for mortgage insurance if I choose to make a low down payment?

If you pay a low down payment, likely you must pay for the mortgage insurance.  However, it does depend on the program. While USDA and FHA loans require mortgage insurance, VA loans don’t require monthly mortgage insurance, only an upfront funding fee.  But for zero to low down home loans, the programs require the same terms on mortgage insurance regardless of the down payment amount.

With a conventional loan though, the amount of the down payment does impact whether mortgage insurance will be required.  A higher down payment will reduce or eliminate the need for mortgage insurance.

Your Real Mortgage Consultant can help you decide the best combination of down payment and mortgage insurance premium for you. You can depend on your Real Mortgage Consultant and Winner’s Mortgage to have a formula for success!

Can I use cash gifts for the down payment?

Cash gifts from approved sources can be applied to the down payment and costs.

What benefits can I get for putting down more money as a down payment?

With no money down loans, down payment cash can be redirected for other purposes.  This may or may not be a good idea depending on the other purpose.  Let your Real Mortgage Consultant help you review your choices so you can make the best decision for you.

Paying more for the down payment reduces your monthly mortgage payment due to the lower loan amount.  The lower your loan amount compared to the property value can also give you the benefit of a lower mortgage insurance premium.  This comes with the potential that you could also remove mortgage insurance earlier.

Some loans though (such as FHA) don’t allow for the canceling of mortgage insurance. In that case, the loan must be refinanced to remove it.

Basic Tips When Dealing with Down Payments

Most people are simply concerned about how much the down payment is. While it is an important component in the process, consider all factors involved. From no money down to over 20 percent, here are some basic tips when dealing with down payments.

Make wise decisions about Private Mortgage Insurance (PMI)

PMI protects lenders if a loan goes into default. It is an additional expense for borrowers.  However, without PMI, low down payment loans would not be available.  This would make homeownership less available.

Although some zero down home loans do not have private mortgage insurance, most loans with less than 20 percent down require PMI. Private mortgage insurance is simply part of the situation with low down payment loans.

Mortgage insurance can be removed on most loans after a few years once it can be proven that that the property has a minimum of 20 percent equity.

Your Real Mortgage Consultant with Winner’s Mortgage can help you work through the best options for you, whether it is paying mortgage insurance for now or working to accumulate a higher down payment.

Keep savings available after your down payment

The down payment is an essential part of the home buying process. But do not exhaust your entire savings for it.

The typical down payment for a house is 20 percent. Ideally, this is the minimum conservative decision that will make your monthly payments easier. If that 20% is your entire savings though, think carefully before proceeding..

Match your decision regarding a down payment vs. mortgage insurance with your financial capability.  From zero-down home loans to 20 percent down payment, your decision will have lifetime implications for your ability to WIN with your mortgage and to have ultimate freedom from loan payments.

Assistance from your credible Real Mortgage Consultant with Winner’s Mortgage is absolutely invaluable and necessary.  Do not trust your financial health and freedom to just any typical run-of-the-mill loan officer.

Check out mortgage loans that do not require a 20 percent down payment

How much down payment do you really need to purchase a house?

This depends on the mortgage product. A complete, exhaustive list is not possible because the options are so varied depending on where you want to purchase your home.

Some of the more common low and no money down mortgage options are listed below.

Explore your complete range of mortgage options and don’t settle for less.  Your acclaimed Real Mortgage Consultant at Winner’s Mortgage is your absolute best mortgage resource.  This is how you can expect to be connected to excellent options that best fit your needs.

Common Low and No Down Payment Options

From no money down mortgage loans to higher down payment loans, here is the typical range of low to higher down payment loan options.

Government and Conforming Loan Programs

Government and conforming loan programs target specific borrowers and homebuyers. These mortgage products offer varying benefits to borrowers and varying qualifications and requirements.

Zero down

No money down mortgage loan programs allow a zero down payment.  These programs are guaranteed by government entities.

The federal government backs the no down payment mortgage.  With that backing, the government reimburses the private lender should the loan go into default.  This gives lenders an incentive to provide zero down home loans.

The USDA loan and VA loan are the two zero down home loans currently available.

USDA Loan (Formerly Known as Section 502 Mortgages or Rural Housing Loan)

The Department of Agriculture guarantees the USDA loan. Qualifying homebuyers purchasing suburban and rural homes can use this no down payment mortgage.

The USDA aims to encourage development in these areas. They accomplish this by attracting homebuyers through no money down loans. In order to qualify, meet the following requirements:

  • The subject property must be in a suburban or rural area
  • The property must serve as your single-family primary residence
  • FICO Score: At least 640
  • DTI Ratio: At most 45 percent
  • Combined Household Gross Income: Not More than 115% of County’s Median Income

Go here for more details about this no down payment mortgage, visit this page.

VA Loan

This government-backed zero down home loan is for the military community.  The Department of Veteran Affairs guarantees the VA loan. Qualifying for the VA mortgage requires a background as an active-duty service member.  Discover more about the VA loan here.

The VA loan has more lenient qualification standards.  Derogatory credit like bankruptcy does not mean automatic disqualification. And finally, you are not required to pay monthly mortgage insurance, only a one-time funding fee for this no money down loan.

Mortgage qualifications include:

  • Entitled to a Certificate of Eligibility based on the military service record
  • The property must be owner-occupied
  • Credit score: no minimum for VA, although some lenders may require a minimum of 620
  • Income: generally up to 41% debt-to-income ratio, although higher can be allowed with compensating credit factors
  • One-time Funding Fee: up to 3.6% of the loan value depending on the circumstances
3% Down

A 3% down payment creates a loan to value ratio of 97% and three loan options through Fannie Mae and Freddie Mac, Conventional 97, HomeReady and Home Possible.

Contact your Real Mortgage Consultant at Winner’s Mortgage to learn if a 3% down loan is right for you, and which of the three choices could be best for you.

Conventional 97

The Conventional 97 allows a 3% down payment with no maximum income requirement.

As low as a 620 credit score can qualify, although a higher credit score receives better terms.

This is a first-time homebuyer program with a requirement that at least one borrower has not owned a home in the last three years.

See more here.

Fannie Mae HomeReady Mortgage

How much is the down payment for the Fannie Mae HomeReady Mortgage?  You can pay as low as 3% down payment.  Generally lower than market interest rates and reduced PMI costs make it worth considering.

Guaranteed by Fannie Mae, this mortgage makes it easier for borrowers to qualify for the loan.  Designed for lower income borrowers, qualification is enhanced by considering the income of everyone living in the household. Boarder income and rental income can also help qualifying.

The borrower’s income needs to be no more than 80% of the are median income.

Credit scores can go as low as 620, although 680 or above will receive better terms.

It is not necessary to be a first-time buyer.

Learn more here.

Freddie Mac Home Possible Mortgage

With the typical down payment for a house at 20%, the Freddie Mac Home Possible Mortgage allows a down payment as low as 3% for lower income borrowers.

The maximum borrower’s income is set at 80% of the area median income.

The down payment and closing costs do not have to come from the borrower’s funds.  Eligible gifts and grants are options.

Home Possible does not require the borrowers to be a first time homebuyer.

Income and credit options vary depending on the borrower’s situation.  With multiple combinations of qualifying factors, the best choice is to work with your Real Mortgage Consultant at Winner’s Mortgage to determine if the Freddie Mac Home Possible Mortgage is right for you.

Freddie Mac also has more information here.

3.5% down

If you’re not qualified for a no down payment mortgage, you can consider a low down payment program. The FHA loan is a common low down payment program.

Although a typical down payment for a house is traditionally 20% of the property price, the FHA low down payment loan requires as little as a 3.5 percent down payment.

FHA Loan

The Federal Housing Administration backs the FHA loan. Although it is not a no money down, it the 3.5% down payment can be funded from authorized sources in addition to the borrower’s own funds.

The mortgage program targets people with low to moderate-income.  Like other low down payment mortgages, the FHA loan has specific qualifications. Discover more about the FHA loan program here, “Is the FHA Home Loan a Good Choice For You?”

Unlike the VA loan, the FHA loan requires the Mortgage Insurance Premium (MIP) to compensate for the low down payment. The MIP stays with an FHA loan as long as it exists. The only way to eliminate MIP on an FHA loan is to refinance or pay it off.

5% down
Conventional loan with a 5% down payment

The next lowest down payment loan after no money down loans, 3% down and 3.5% down comes at a 5% down payment.

If a typical 20% down payment for a house is possible for you, of course that is the best option.  However, with the assistance of your Real Mortgage Consultant at Winner’s Mortgage, you can learn if a 5% down payment loan can be good for you.

Fannie Mae HomeReady and Freddie Mac Home Possible

The Fannie Mae HomeReady and Freddie Mac Home Possible mortgage loans (see above) are also available at a 5% down payment, so they are worth checking.

Conventional conforming financing

A conventional loan is a loan not guaranteed through a government agency such as FHA or VA.  Instead, they are insured through private lenders or government-sponsored entities (GSE), such as Fannie Mae or Freddie Mac.

Most conventional loans are also conforming loans, meaning that they meet Fannie Mae or Freddie Mac guidelines and they can therefore be sold by those GSEs.

Down payments of 5% are available through Fannie Mae and Freddie Mac.

This financing can be available for credit scores of 620 or higher, a DTI of 50% or less (although Winner’s Mortgage recommends a lower DTI ratio), and a loan amount less than the conforming limit, $647,200 up to $970,800 depending on the property and location.

80/15/5 financing

Commonly known as a piggyback loan, historically an 80/15/5 loan is actually two mortgage loans.

The first mortgage is set at 80% of the property’s appraised value.  The loan amount is designed to avoid the need to pay mortgage insurance.

The second mortgage loan amount covers 15% of the value resulting in a down payment of 5%.

Historically, this has been a viable option, although the 80/15/5 is less available today, if at all.

10% down payment

A down payment of 10% can be a viable middle strategy to pay less than 20% down without higher expenses of a lower down payment loan.

Conventional conforming financing

Fannie Mae and Freddie Mac offer conventional conforming financing with a 10% down payment.

As a mortgage loan with a loan to value ratio above 80%, private mortgage insurance is required.  However, the mortgage insurance premium is less than it would be for higher loan to value financing options.

Qualifying is the same as for the other conforming options, generally a minimum credit score above 620, no need to be a first time homebuyer, debt to income ratio under 43%.

80/10/10 financing

A more common version of a piggyback loan available in the current market is the 80/10/10 financing, as opposed to the 80/15/5 above.

The 80 refers to the first mortgage, the first 10 is the second mortgage, and the last 10 is a 10 percent down payment.

This mortgage is comprised of two loans. The first is a conventional first mortgage and the second is either a fixed rate second mortgage or home equity line of credit (HELOC).

This program is intended for borrowers with above-average credit scores. It has an 80/10/10 structure.

A fixed rate second mortgage calculates the payments based on 30 years with the remaining balance required to be paid off in 15 years. A home equity line of credit comes with an adjustable interest rate and flexible loan balance up to a maximum limit similar to a credit card, except secured by the house.

An 80/10/10 piggyback allows for financing of a home with a 10% down payment and no mortgage insurance.

20% down payment

The typical down payment for a house is 20 percent of the purchase price.

The higher down payment reduces the monthly payment and eliminates the need for mortgage insurance.  Therefore, the required monthly payment becomes more affordable.

With a higher down payment and reduced monthly payment, qualifying based on the debt to income ratio can be easier.

Programs and Strategies to Reduce Closing Costs

The total closing costs can be intimidating for some borrowers. While most people ask how much the down payment is, others are more concerned about the closing costs. Closing costs can be as much as 7 percent, depending on the amount, mortgage program, and lender. These closing costs are essential to facilitate the home sale process. Some of the fees that might be included in the closing costs include:

  • Credit report fee
  • Home appraisal fee
  • Origination fee
  • Underwriting fee
  • Title search fee
  • Survey fee (For single-family or townhome)

This is a partial list. Here are some strategies to reduce your cash at closing.

Seller Contributions to Closing Costs

Many lenders allow sellers to contribute up to 6 percent of the purchase price as a closing cost credit. This can be a less available strategy when housing inventory is low.  With lower inventory, more competition amongst buyers makes sellers less motivated to offer contributions.

Normally, sellers increase the price to cover the contribution toward closing costs. This effectively puts more of the closing costs into the financing. Here are two potential problems with this approach.

First, as mentioned, when the market is active and inventory is low, sellers will not be motivated to contribute to closing costs. Second, the appraisal must support the higher value which results from increasing the offer to cover the seller’s contribution to closing costs.

Work with your Real Mortgage Consultant at Winner’s Mortgage who will coordinate this strategy with your real estate agent.

First Time Home Buyer Programs from Government and Institutions

For a first-time home buyer, various government entities and institutions offer a variety of programs designed to contribute to closing costs. Various loan programs will accept these contributions. These programs are too numerous to detail here.  Availability varies by location. Therefore, your smart choice is to check your options with your Real Mortgage Consultant. The first step is to “Get Started” with Winner’s Mortgage here.

Special Circumstances

Every homebuyer has different and unique circumstances that prevent qualifying for the financing.  Perhaps you have bad credit, or you have the income but can’t prove it according to the lender’s standards.

Options can sometimes handle these situations, either now or later.

Bad Credit

Having bad credit is a negative mark on your qualification. Options can be available with specific mortgage programs having more lenient credit qualifications. One of those programs is the FHA loan.

Depending on the credit score, a borrower can qualify for FHA, or can qualify with a higher required down payment.

If your credit score is below 500 and won’t qualify for the FHA loan, the only thing to do is to raise your credit score.

Some of these ideas listed below can help to improve a credit score with enough time.  This can be possible through the following:

  • Clearing all outstanding debt
  • On-schedule payment of all loan and credit card bills
  • Review your credit report for possible errors and remove them
  • Reduce your credit card expenses
  • Apply for a legitimate and secured credit card
  • Take out a personal loan and pay it back full

One thing is for sure, your best option is to start early with your rock-solid Real Mortgage Consultant at Winner’s Mortgage to advise you step by step through the process.

Self-employed or Commission Income

Self-employed homebuyers have some different requirements in the loan application process. Almost all lenders require two years of income tax returns. Since you don’t have pay statements from a job, lenders will review your bank statements and tax returns. These documents are used to prove your sufficient income and cash flow needed to pay the loan.

Proving your income in this way allows self-employed or commission borrowers to get the same low down payment terms.

Investment Property

When purchasing an investment property, low down payment mortgage financing is not available if you will not live in the property.

However, lower down payments can be available if you do live in the investment property, such as a duplex, triplex, or fourplex.

Your first, best choice

Many low down payment loan programs are available. With a variety of options to consider depending on the borrower and property location, choosing correctly can be confusing and overwhelming.

Understanding your best options is the key to WIN with your mortgage.  You can depend on Winner’s Mortgage.

Start with your Real Mortgage Consultant as your first, best choice to make the right decision for you.  Get started with Winner’s Mortgage Client Questionnaire loan application.  When you provide basic information about your own situation you get the very best information that will benefit you the most.

You can WIN with your mortgage, even with a low down payment.  You don’t have to lose like most people lose, and they don’t even know they are losing.

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