If you are looking to buy a home with a small to zero down payment, there are different programs in every state. It’s also possible to get help with your closing costs. When you couple the two, you can buy a home with zero money down, and people do this every day. The traditional ‘American Dream’ could be yours, with little to NO money down!
Here are some steps you can take:
The first step is to talk to a good Mortgage Lender or Realtor who can connect you with Mortgage Lenders that can assist. It’s always a good thing to talk to a specialist well in advance, so that you can address any credit issues. Most Mortgage Lenders use a simulator to plug in your information and it will tell you what to do to improve your credit score.
The lender can also do a “Soft Pull” so that your credit score is not affected.
For example, it may tell you to pay your Capital One card down to a certain amount to boost your score. The higher credit score, the better rate, and the more house you qualify to purchase. With a lower interest rate, you will save more money over the life of your loan and again, your home buying power increases.
Save for a down payment. Even if you don’t have a lot of money to put down, try to sock away as much money as you can. A down payment of even a few thousand dollars can make a difference.
Look into down payment assistance programs. Many states and local governments offer down payment assistance programs to help first-time homebuyers with the cost of purchasing a home. These programs are often also for people that haven’t owned a home in the last 3 years. Check in your local area for any programs that have low-income home purchase programs. Find a good Real Estate Agent with plenty of training and experience in selling homes using Down Payment Assistance Programs.
A good Mortgage Lender and Real Estate Professional should know a lot about these programs.
Income limits are increasing as inflation and the cost of living increases, so you may be very surprised at how much income you can make per year and still qualify for Down Payment Assistance Programs.
It may also be beneficial to consider using an FHA loan, which allows for a down payment as low as 3.5% of the purchase price. This loan program can make homeownership more accessible to those who may not have a lot of money saved. These loans also offer a higher debt to income ratio. Many people buy homes with an FHA Loan, and it doesn’t mean they are lower income borrowers.
VA loans for veterans and USDA loans (for rural areas) do not require a down payment and may be options for those who are eligible.
Keep in mind, you will need money for a house inspection, and an appraisal. Sometimes you can pay for the appraisal at closing, but not all lenders allow that. So, be sure that you have some extra funds for these items.
It’s important to keep aware that while a small down payment can make homeownership more accessible. It may also result in a higher mortgage payment and a longer loan term. Many loan programs allow you to pay off your mortgage early without penalty, so if you do have a bit of a higher rate, most see it as an opportunity to use ‘Other People’s Money’ as leverage to get yourself into a home, and reap the benefits of homeownership.
It’s a good idea to work with a Realtor, Loan Officer, or even Financial Advisor to understand all of the costs involved in purchasing a home. Not only that, what is your plan with the house? Are you going to live there for a few years and then rent it out when you buy another?
Or, will you possibly sell it after the market goes up? A great way to increase your personal ‘Net worth’ is to buy another using the equity you’ve gained. Then, rent out the house and buy another, using the ‘Equity’ or the increase in value of your home that doesn’t include what you owe on it to the mortgage company or any other deed or lien on your home’s title.
Either way, if there’s a will, there’s a way to buy a house. Check out this article “What to Avoid After Applying for a Mortgage“ for some great tips to ensure you don’t disqualify yourself during the homebuying process.
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