I have no down payment for a house

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Becoming a homeowner doesn’t necessarily require a large down payment; there are options to help you get the keys without giving up every dollar in your savings. Here are three main pathways that might be right for you:

• See if you qualify for a zero-down mortgage option. Bank of America just started a program with this goal in mind for minority neighborhoods. USDA and VA loans allow you to get a mortgage without a down payment. To qualify, though, you’ll need to meet certain criteria related to where the property is located, how much money you earn, or whether you or a spouse has served in the military.
• Explore low-down payment mortgage options. Both conventional mortgages and government backed mortgages are available for people putting down less than 20 percent.
• Ask family or friends for help. Many lenders allow you to use gift funds from a family member — and in some cases, a close friend, labor union or an employer — for your down payment. You’ll need to provide a letter from the source of the gift that shows you don’t need to pay the money back.

Zero-down mortgage options

The easiest way to avoid a down payment is to qualify for one of the two no-down payment government-backed mortgage programs: USDA and VA loans. In addition to government options you may be able to get a zero down loan through your local credit union, especially if it’s one based on membership in a professional organization. These are relatively rare but are worth looking into if you can find one.

•  USDA loans

The U.S. Department of Agriculture (USDA) backs USDA home loans, a mortgage guarantee program for those buying a home in a designated rural area. USDA loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify, and, in some cases, be a first-time homebuyer. You can verify your eligibility via the USDA website.

Although there’s no down payment with a USDA loan, there is an upfront guarantee fee, which borrowers can roll into the cost of the mortgage. While you won’t pay any money initially if you choose to roll it into the loan, keep in mind that it adds to the balance and will accrue interest over the loan term, which means you’ll pay more overall.

• VA loans

If you’re a military servicemember, veteran or surviving spouse, you could be eligible for a VA loan backed by the U.S. Department of Veterans Affairs (VA) with no money down. There is no mortgage insurance with this type of loan, but like a USDA loan, you do have to pay an upfront funding fee, which can be rolled into the mortgage. (Note that you can reduce the funding fee by making a down payment, but no down payment is actually required.)

Another perk of VA loans is that many lenders offer more competitive rates for these products, which helps you save quite a bit of money over the life of the loan.

Low-down payment mortgage options

If you don’t qualify for one of the no-down payment home loans, you might still be able to buy a home with the next best thing: a low-down payment mortgage. Here are some of the options available:

• FHA loans– Backed by the Federal Housing Administration (FHA), an FHA loan only requires 3.5 percent down with a credit sore as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.) It’s a popular option for homebuyers with less-than-perfect credit. Like other government-insured programs, FHA loans are offered by private mortgage lenders, so you might also have to meet a lender’s criteria in order to qualify. Additionally, you have to pay for FHA mortgage insurance, which adds to your monthly payment and the cost of the loan.
• HomeReady mortgage – The Fannie Mae HomeReady mortgage, available through many mortgage lenders, is backed by Fannie Mae, a government-sponsored enterprise (GSE). The down payment requirement on a HomeReady loan is 3 percent, and the loan itself offers flexible underwriting. While you’ll have to pay mortgage insurance to compensate for the low down payment, it’s often at a lower price tag than what you might see with a conventional loan.
• Home Possible mortgage – Backed by Freddie Mac, Home Possible is a similar mortgage program to HomeReady, with a 3 percent down payment requirement. Borrowers do have to pay for mortgage insurance — again, at potentially a lower rate — but also enjoy the same credit flexibilities.
• Conventional 97 mortgage – A Conventional 97 mortgage is another GSE-backed program, available from Fannie Mae and Freddie Mac, that only requires a 3 percent down payment. It’s important to note that conventional mortgages require a higher minimum credit score of 620. As with other low-down payment programs, you need to be financially prepared to pay for mortgage insurance each month.
• Good Neighbor Next Door – The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and are planning to buy a home in a qualifying area. The program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides a discount of up to 50 percent on a home with a down payment of just $100. Through the program, the borrower must qualify for a first mortgage, and the discounted portion of the home comes in the form of another loan. As long as the borrower continues to meet program requirements, the second mortgage won’t have to be repaid.

Pros and cons of a no-down payment mortgage

The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.

Pros

• You can buy a home sooner. When you don’t have to come up with a substantial down payment, it’s easier to buy a home sooner, especially if you’re in an area where home prices are spiking. Alternatively, if you want to take advantage of a good deal or a dip in the market, you can move fast without having to spend time saving for a down payment.
• You can keep more cash on hand. Even if you have enough to make a sizable down payment, you might want to keep cash on hand for remodeling or to reach some other goal. With a zero- or low-down payment mortgage, that extra cash remains available to you.

Cons

• You’ll have no or little equity. When you start with a no-down payment home loan, you don’t have much or any equity in your home at the outset because you’ll owe nearly 100 percent of the home’s value. That means you won’t be able to tap into your equity in an emergency, and during a downturn, you could end up owing more on the home than it’s worth, making it difficult to sell and move if that becomes necessary.
• Your interest rate might be higher. In some cases, you might have to pay a higher mortgage rate for a no- or low-down payment loan. That’s because with less money tied up in the home, a mortgage lender might view you as more of a Of course, the higher your interest rate, the more you’ll pay overall.
• You’ll need a bigger mortgage, which translates to higher costs. The less you put down, the more you’ll need to borrow, which means you’ll pay more in interest over the life of the loan.
• Your offer for a home might not look as compelling. It’s a competitive housing market in most places around the country. If someone else makes an offer on a house with a large down payment, that buyer might look like a better bet for a smooth transaction in the seller’s eyes.
• You might have to pay extra fees. Some no-down payment home loans come with extra fees, which add to the cost of the loan.

FAQs about no or low-down payment mortgages

Bottom line

As home prices rise, hitting that oft-quoted 20 percent down payment is becoming increasingly difficult for many homebuyers. Don’t let the need for a huge sum of money discourage you from trying to own a home. There are a range of programs that can help you buy a home with no money down or just a fraction of the purchase price. Compare all your loan options, and, more importantly, compare multiple lenders. By comparison-shopping for a mortgage, you’ll be able to land the best deal that makes sense with your savings and budget.

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