What Is The Smallest Down Payment On A House I Can Make? Where Can I Find A Zero-down Loan?
If you’re looking to purchase a home, one of the biggest obstacles is affording a substantial down payment. In general, the larger the down payment, the more favorable terms you’ll have from the lender when seeking out a mortgage.
However, you may have poor credit history or a lack of savings to fund a down payment - Are there options to circumvent this problem? The answer is yes through no down payment mortgages.
In this article, we will take a look at what options borrowers have to take out loans with no down payment.
What are No Down Payment Mortgages?
A no down payment mortgage (also known as zero-down loans) enables home buyers to purchase property with no money required at closing except for standard closing costs (such as home appraisal, home inspection, and so forth). For some no down payment mortgages, prospective buyers may be required to pay mortgage insurance premiums, but this may not be true in every case.
Which Types of No Down Payment Mortgages are Available?
Generally speaking, there are two major types of no down payment mortgages available, both of which are government-issued mortgages:
- USDA loans (from the U.S. Department of Agriculture)
- VA loans (from the Department of Veterans Affairs)
Let’s take a look at how each loan works, what’s required to qualify for the loan, and some of the key benefits that make them attractive to homebuyers.
USDA loans
The U.S. Department of Agriculture offers a mortgage that’s designed for homebuyers that may want to purchase property that’s designated in “rural” areas. Formally known as a Section 502 mortgage, USDA loans are commonly referred to as a Rural Housing Loan.
The USDA loan is designed to help low-to-moderate income homebuyers who want to move to rural communities. However, how the USDA defines rural areas is actually more broad than just farmland and undeveloped acreage. Instead, the USDA loan may be available for qualified homebuyers in suburban neighborhoods that border towns with significant populations. Typical examples include Columbus, OH, State College, PA, and Christiansburg, VA, among many others.
Minimum Requirements for a USDA Loan
The following are some of the minimum requirements to qualify for a USDA loan:
- U.S. citizenship or legal permanent resident
- A credit score of at least 640
- Stable and dependable income
- A willingness to repay the mortgage - generally 12 months of no late payments or collections
- Adjusted household income is equal to or less than 115% of the area median income
- Property is located in a qualified rural area
- Property serves as the primary residence
Bear in mind that lenders may have their own requirements in addition to those set by the USDA.
Benefits of the USDA Loan
Some main benefits of the USDA loan include:
- Eligible home repairs and improvements can be included in the size of the loan
- USDA mortgage rates are often lower than rates for similar no down payment and low down payment loans
- Guarantee fees are added to loan balance at closing
- Mortgage insurance collected monthly
VA loans
The VA loan is a no-money-down mortgage program available to members of the U.S. military (active and veterans), as well as surviving spouses. Guaranteed by the U.S. Department of Veteran Affairs (VA), VA loans are similar to low-money-down loans such as the FHA loans, meaning that the VA guarantees repayment to lenders making loans that follows VA mortgage guidelines.
Minimum Requirements for a VA Loan
The following are some of the minimum requirements for individuals looking to qualify for a VA loan:
- Individuals available to active duty
- Honorably discharged service personnel
- Spouses of service members killed in the line of duty
- Individuals who have spent at least 6 years in the Reserves or National Guard
Some of these qualifications have minimum time-served requirements, so be sure to look over the VA’s loan eligibility requirements webpage for more details.
Benefits of the VA Loan
Some main benefits of the VA loan include:
- Bankruptcy doesn’t disqualify applicants
- Bad credit may not immediately disqualify applicants
- No mortgage insurance is required for the loan
- You may use intermittent occupancy
- VA loans also allow for loan sizes of up to $822,375 in high-cost areas (such as Honolulu,Hawaii and San Francisco, CA, which are located to United States military bases)