…Help is on its way!
You will be pleased to know that there are several options for you. The lending world is always
changing. The good news right now is there are several loans that will give you the opportunity
to purchase a residence with little or no money down.
What does that mean? When you get a loan for a home it is usual for your lender, whether that
is a bank, a credit union, or a mortgage broker to require that you place a down payment to
purchase the home. It will generally be a percentage of the actual purchase price. It is typical
for it to be from 10% to 30%. The more money you place down on your home, the less risk the
lender is taking. Most often the terms of these loans will reflect the amount of risk that lenders
feel they are taking on your loan. Terms on loans include things like the interest rate charged,
the number of years that the loan is amortized for (how many payments till the loan is paid off),
the amount of closing costs the lender is requiring up front to close the loan, whether they are
going to charge PMI (primary mortgage insurance – an insurance policy that helps them should
you default on the mortgage).
However, it is possible that you might qualify for a zero- down payment mortgage with a
government backed (sponsored) loan, typically a USDA or a VA loan. That would mean you
could purchase the home with no down payment. This is made possible by the government
insuring the loan so that the lender is taking less of a risk should you default. This government
insurance to the lender provides the lender the means they need to allow them to take the risk
and make the no-money down loan.
You must qualify as a veteran to be able to use the VA loan. For a VA loan, you must have had
90 consecutive days of active service during wartime, 181 consecutive days of active service
during peacetime, more than 6 years of service in the National Guard or Reserve, or at least 90
days under Title 32 orders. You could also qualify if you were discharged due to a service-
connected disability or if you’re the qualifying spouse of a service member who died in the line
of duty or from a service-related disability.
For the USDA loan, you must be purchasing a home in a rural or suburban area. It cannot be a
working farm. It must be your primary residence. Your combined household income cannot be
more than 115% of the median income of the area your home is in. Your debt-to-income ratio
shouldn’t be higher than 41%. The best way to find out what these numbers are is to talk to a
local lender that is offering the USDA loan. They will be able to guide you quickly. They will also
have a minimum credit score that they are going to require. Usually that score is around 640.
If you do not qualify for the VA or the USDA loan, there is still another possibility called a FHA
loan. This loan will allow for a lower down payment, but it won’t be zero. There are many
lenders with their own programs that will allow you to purchase a home with as little as 3%
down. They will also lower the minimum credit score to 620 on many of these loans.
So what is the best way to proceed? Chat with a lender about possibilities and what do they
believe is their best route for your situation. Don’t be afraid to talk to more than one, as every
lender is different. Some offer programs, terms, or other options that might be a better fit for
what you need in order to make that purchase of your next home. Ask what they are offering,
what are the terms, the interest rates, and the costs associated with the loan. Jump online with
a mortgage calculator and in moments you can see what your payments would be on what
purchase amounts. Armed with all this good information you will be able to focus on what
price range you should be concentrating to meet your goals!
Now you are ready to go house shopping! Give us a call and we can walk you through this
process! But already you know more than all those other buyers you are competing with for a
house! We can also give you our favorite lenders who can help answer more specific questions!