When it comes to real estate, I always think that it’s better to own than to rent, but how to buy a house with no money, if you’re like us, for instance, fresh immigrants slowly building our net worth?
When interested in buying a home for the first time, there are 2 main options:
- you pay it in full
- you sign a mortgage
Most of the time a mortgage means having saved a down payment and then, the rest, is being broken down in small monthly chunks.
You can get a mortgage for 15 years and even 30, depending on the home value, your monthly income and how fast you are willing to pay off your debt.
But, again, how to buy a house with no money for the down payment?
While it’s always advisable to aggressively save money for a big down payment, in some cases this is not possible. Even if the conditions for your home loan won’t be as good as someone’s with a hefty down payment, there are still options for you as well.
There are mortgage options that require no down payment and even accept a poor credit score. If you cannot improve your credit score or save more money for your down payment, then look into these options:
No money down mortgage
If you don’t have money saved for a down payment, maybe you qualify for a USDA rural development loan.
Don’t let the name scare you, even if it’s been created to help rural areas, the USDA loans option works nicely for most areas around the major cities, as they are also considered rural.
Another zero down payment mortgage option, created specifically for veterans.
VA loans provide a 100% financing, which means you can get it with no down payment, as well. Another good news is that you are not required to pay a mortgage insurance, which means saving thousands of bucks every year.
They do require a one-time funding fee, which is 2.15% of your total loan. Don’t get scared you’d have to shell 6,450 for a $300,000 mortgage (as an example), you can finance it into a loan, although, personally, if you cannot save this money to pay all the fees, paying off the loan and keeping on saving at least an emergency fund is going to be a drag.
A 620 credit score is required and, again, before getting into any such serious debt, make sure you improve your credit score.
Navy Federal Credit Union
Another 100% financing option, created for those who are in the Navy Federal Credit Union and buy a home for the first time.
This no money down mortgage also doesn’t require a PMI (Private Mortgage Insurance) and has 2 main programs:
- conforming loans – up to $424,100
- super jumbo loans – up to a million
Low Down Payment Mortgage
I know we started talking about how to buy a house with no money, but a very small down payment might also do the trick.
An FHA Loan is a type of government-backed mortgage insured by the Federal Housing Administration (FHA), hence the name. It’s widely used by people who are not into a great financial situation and still want to buy a home: those with little savings for a down payment and not a great credit score.
FHA loan requirements:
- credit score of 580+
- down payment of at least 3.5%
You can be accepted with a credit score smaller than 580, but you have to save a 10% down payment.
Find out more about FHA loans:
These are not guaranteed by a government agency, but conform to the rules set by Freddie Mac and Fannie Mae. If you choose a 30 year fixed mortgage you can put down as little as 3%, although footing a bigger down payment will allow you better mortgage conditions.
The biggest issue with a small down payment is that you’ll almost surely have to pay private mortgage insurance (PMI), so try to save at least 20% down payment.