If you are looking for houses on the market, you probably know by now that part of the process of owning a home involves making a down payment. Lenders typically require a down payment, but luckily, there are many options that don’t require a down payment.
What are the Advantages of Making a Down Payment?
Before you decide against a down payment, consider the pros and cons. Paying a down payment lowers the cost of your monthly payment and you pay less interest over time. Also, if you pay a high down payment, like 20 percent, lenders are more likely to give you a better interest rate, because you’re borrowing less money. A higher down payment can also save you money because you won’t need to purchase private mortgage insurance, or PMI, which will lower your monthly payments even further.
What Down Payment Amount Is Typical for Lenders to Request?
A lot of people assume that down payments have to be a high percentage of the house cost, and although 20 percent will usually get you a lower interest rate, that’s not a required amount. There are many loans whose requirements are much lower than 20 percent. These include FHA loans, which only require 3.5 percent and are backed by the Federal Housing Administration, allowing lenders to lend money to anyone who can’t meet the 20 percent down payment requirements of conventional loans.
Mortgage Options With a Zero Down Payment
VA Loans are available to former and current military members, as well as surviving spouses. The U.S. Department of Veterans Affairs guarantees the loan, so lenders have broader requirements for borrowers. No down payment is necessary, but you also don’t have to pay for private mortgage insurance. There is an upfront funding fee of 2.15 percent, but you may be exempt. If you are not exempt, you can add the cost to your loan and still have 100 percent financing available.
Does My Credit Score Affect My Eligibility?
The VA loan program does not have credit score requirement, but your lender most likely will. Most lenders will ask for 620 to 640, but there are some who allow a number lower than that.
Is There a Borrowing Limit?
You can apply for an unlimited amount, but the VA will only guarantee up to a specific sum. These limits are called conforming loan limits, and the Federal Housing Finance Agency decides the limits. Depending on the market you are buying in, the limitations could be anywhere between $450,000 and $720,000. You can purchase a home that exceeds the loan limits if you make a down payment for at least 25 percent of the amount that exceeds the county limit. If you go over your limit by $100,000, you can make a downpayment of $25,000 and still get the loan.
The U.S. Department of Agriculture guarantees USDA loans, which are available to those who are interested in moving to specific suburban and rural regions. Your eligibility depends on your income versus the median income in your area. The USDA has a limit on your income, so if you make over the maximum, you are ineligible. Like the VA loans, there is no down payment requirement, but there is a PMI, which is usually 0.35 percent of the current loan balance per year and broken up into 12 monthly payments.
Are There Any Other Fees Associated with the USDA Loan?
When you apply for a USDA loan, you have to pay an upfront fee, which is one percent of the loan amount. Despite its name, you can add the upfront fee to the balance of the loan, so you don’t actually have to pay it up front. You do not have to pay a down payment, but if you have any money saved up for one, putting money down for the loan will give you a lower monthly payment.
Does My Credit Score Affect My Eligibility?
You do not need a specific credit score to be eligible, but if your score is lower than 640, you will need to complete other steps to show you are not a high-risk borrower. You cannot get a USDA loan if you are delinquent on a federal debt.
Are There USDA Loan Limits?
USDA loan limits depend on what county your new house is in, but are currently somewhere between $117,000 and $576,000, although most counties are closer to the $120,000-$250,000 range. Another limitation is that the house you purchase typically needs to be under 2,000 square feet.
Special programs, like the Doctor Loan Program, will offer zero down payments if you are eligible. The Doctor Loan Program is available to doctors, dentists, fellows, and residents who are just getting started and have significant student debt. Depending on your debt-to-income ratio, you will pay between zero and 10 percent, and you won’t need to pay a PMI.
If you want a lower down payment, start working on your credit score. Lenders lend money to people who have shown they can pay their money back. That means you need to start decreasing your debt and this takes time. Obtain a free credit report from www.annualcreditreport.com and start chipping away at your debt. Not only will this free up some of your money, but it will also increase your credit score so you’ll have a smaller monthly payment and therefore, more money.
Homes For Heroes
When and you are ready to get assistance with financing and start looking for a house, visit Homes for Heroes. We will connect you to our local Affiliate Real Estate Specialists in your area. If you are a medical professional, EMT, firefighter, teacher, police officer, or military service member, you can earn $700 for every $100,000 you spend on a house. It’s our way of saying thank you for your service.