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Looking to buy a house with no money down? Here are your options for how to do it.
Becoming a homeowner is part of the American dream, but many people find it difficult to come up with enough money for a down payment. Mortgage lenders traditionally required you to put 20% down in order to qualify for a loan, but today, there are many options for buyers who can't make such a large deposit. Still, with most types of loans, you do need to bring at least some money to the table.
If you're hoping to buy a house without a down payment, you do have a few options, including:
For most people, the best option is to choose a government-backed loan, or to get an 80/20 mortgage with a conventional lender.
If you do not have a down payment for a home, you'll generally need to borrow 100% of the money needed to make your purchase.
One way to do this is to obtain a loan from a single lender willing to allow you to borrow without bringing money to the table. Or you can take out two loans -- a primary mortgage that covers 80% of the home's costs and a second mortgage or home equity loan that covers the other 20%.
However, while you can buy a house with no down payment, it's often not a good idea. If the market takes a downward turn, you could end up owing more than your home is worth, making it difficult or even impossible to sell or refinance. It may also be more expensive to buy a home with no down payment. If you have even a small amount of money to put down, you'll find more options for loans at affordable prices.
Conventional lenders that offer loans with no down payment will charge you a fee for private mortgage insurance (PMI). This protects the lender in case of default. In fact, you will have to pay PMI on conventional mortgages if your down payment is less than 20% of the home's value. Government-backed loans that allow you to purchase a home with no down payment also come with additional fees that make paying off your house more expensive.
Loans guaranteed by the government, including USDA Loans and VA loans, are designed to help people buy a home when they otherwise wouldn't be able to do so.
These loans are issued by private lenders but insured by the government so the lenders take on less risk. Both USDA and VA loans enable you to borrow 100% of your home's value so you do not need a down payment. However, you may still need some money saved up, as there are closing costs and up-front loan fees to pay.
Rent-to-own is another option. When you purchase a home this way, you agree to rent a home for a certain period of time with the option to buy it at the end of the lease term. You usually need to pay the landlord an up-front, non-refundable fee in exchange for the option to buy the home. Often, a portion of the rent you pay is applied to the purchase price of the home, so you build equity that serves as a down payment when you apply for a loan to buy the house at the end of the lease term.
While a rent-to-own situation could enable you to buy a home with no down payment, there are few owners willing to agree to this type of arrangement. And many rent-to-own contracts have unfavorable terms, so it is important to read the fine print carefully.
You may also wish to:
Getting a mortgage with no down payment will require you to shop around carefully, as you'll have fewer loan options. You may also need to do one of the following:
Your options for zero-down mortgages include:
If you meet the eligibility requirements, each of these loans could enable you to become a homeowner even if you can't afford to save up money to make a down payment. However, make sure you understand the up-front and ongoing costs associated with each option. That way you can make an informed choice about whether to purchase a home now or wait until you've saved enough for a down payment and have a broader array of loan choices available.
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