A recent study said that Buying a home is an enormous decision, one that has an impact on your credit and finances like no other purchase could. The vast majority of homes are purchased through a mortgage, but most traditional mortgages require 20% down — and that is a big chunk of change that many potential homeowners might not have. What if you meet all other requirements but just don’t have the cash for that big down payment? There are more than 8 different mortgage loan programs outlined here to show you how to buy a house with no down payment.
How To Buy A House With No Down Payment
New Equity Zero Mortgage Loan
The new program offered by Equity Resources has limited funds available for those who are qualified for the down payment gift program. Being offered as part of the Freddie Mac 97% Home Possible Loan Program, Equity Zero offers a 3% Gift to home buyers. The funds for this program come from our Company, and are available as equity to the buyers the day of closing. There’s no pre-payment penalty and no requirement to pay the gift back.
There are income restrictions for the qualified borrower, which are based upon the address. In NC, most of Eastern NC has no income restrictions because we had so many areas affected by Hurricane Matthew. The program can also be used with the NCHFA Mortgage Credit Certificate Program.
The rate for this program is very competitive to the NCHFA programs, however this program is ONLY available through our company. This loan, as with the other loans we are discussing here, are focused on those who have not owned a home in the past 3 years, and who will be owner occupying the property. The minimum credit score for this loan is 660.
USDA Home Loans
Although these are often known as ‘rural’ loans, that doesn’t mean you have to buy a home in the middle of nowhere — some eligible locations are in surprisingly populated settings, like Holly Springs, Wake Forest and Leland. Loans through the Department of Agriculture are available to those who have at least decent credit and a steady income that doesn’t exceed certain median income requirements.
The USDA Home Loan NC program is looking at HOUSEHOLD income, unlike Equity Zone that is looking at the Qualified Borrower income.
USDA Home Loan Income limits change based upon County. These are 100%, no down payment required loans.
Homes in certain urban areas are not eligible. The potential homeowner must not already own a home.
There is no mortgage insurance on these loans; however, there is a 2% upfront fee, which can be rolled into the loan, as well as an annual fee of 0.5% of the loan balance. Every County in NC has an area that qualifies for these no down payment loans.
VA Home Loans
These loans backed by the Department of Veterans Affairs allow veterans and their surviving spouses to purchase a home with no money down and limited closing costs. The average interest rates tend to be lower than those found in typical mortgages, and credit and income requirements are more flexible. As an added bonus, these loans do not require mortgage insurance, which can greatly reduce monthly payments.
The Federal Housing Administration has offered advantageous terms since 1934; today they are one of the best mortgage loan options out there for those with less-than-perfect credit. The required down payment of 3.5% is much more attainable for most potential buyers.
Many first time home buyers in NC might qualify for a 3% Down Payment Assistance in the form of a deferred, forgivable loan from NCHFA. There are some income restrictions for this program that vary by County. The Down payment can also come as a gift from family.
How does this compare to a Conventional Loan, backed by Government Sponsored Agencies like Fannie Mae and Freddie Mac?
The FHFA and Fannie and Freddie have given lenders the clarity and reassurance they sought, but credit availability is still very limited because of the guidance from FHA. Laurie Goodman, Codirector, Housing Finance Policy Center of the Urban Institute wrote, “The FHA, not Fannie and Freddie (the GSE’s), has historically insured borrowers with less than pristine credit, because the FHA does not do risk-based pricing. The FHA charges the same fee for those with perfect credit and those with less than perfect credit.
The GSEs, on the other hand, impose risk-based pricing through their loan-level pricing adjustments,” Goodman said.
That’s right… the Mortgage Interest Rates are cheaper in most cases for a FHA Mortgage Loan, even with low 700 credit scores, than it is to get a Conventional loan. FHA Mortgages are “backed” or insured by the US Government. That “insurance” against any loss is very attractive to folks who want to buy mortgage securities.
Even thought that “insurance” has a cost, the FHA PMI costs for lower credit scoring borrowers is still substantially less than the PMI for a similarly scored Conventional Loan.
Another benefit of FHA Mortgages? We can use a non-owner occupied co-borrower to help with qualifying. This will not help over come credit score issues… however, in the event the borrower does not have the income to qualify for the home they want to buy it’s a huge benefit. We often see this in a situation of a single parent, or a situation where one spouse has great income, but not so great credit history.
First Time Home Buyer Programs
In addition to the programs listed above, there are numerous other programs available to first time home buyers in NC. Sometimes these programs are offered through a particular municipality, like the Raleigh City 2nd program.
For instance, the HomePath Ready Buyer program gives new homeowners 3% of the purchase price toward closing cost assistance upon completion of a home buyer education course. Another option is the HomeReady program, which applies to homes in lower-income neighborhoods. These are FNMA Programs available across the state.
Although there are limited funds at this time I think there are less than 300 loans left, NCHFA is offering a $15,000 forgivable, deferred payment loans on existing, owner occupied homes. The loans that are currently available in 2017 (call us to see if they are still available) are only offered in Johnston, Cabarrus, Cumberland, Guilford and Mecklenberg Counties.
The $15,000 down payment assistance for first-time home buyers is funded through the U.S. Department of the Treasury’s Hardest Hit Fund®. The five counties were selected based on a defined set of distressed housing market indicators and other criteria approved in cooperation with the U.S. Department of the Treasury.
This $15,000 loan is forgiven at a rate of 20% per year each year that you stay in the home, and fully forgiven after year 5. If you are interested in a down payment loan that is outside of this program area, NCHFA routinely offers similar 5% down payment assistance in the form of a deferred payment, forgivable loan in every county.
The NCHFA loans are only available through approved lenders, and we are thankful to be on that list.
First time buyer programs might have varying criteria, such as income limits, credit requirements and the like. They might also be limited to homes of a certain value.
Finally, remember that some little or no-money-down mortgages come with one big caveat: Private mortgage insurance. This typically kicks in when the down payment is less than 20% of the purchase price. All of the loans mentioned in this post fall within this situation.
Though PMI can be removed from the mortgage once a certain repayment threshold has been reached, it might drive monthly payments up significantly in the meantime. Because of the “over lay” of PMI company guidelines, this is really a situation where First Time Home Buyers in NC need expert guidance.
Many loan officers might do a couple of loans for first time home buyers a year – few of them FOCUS on the programs available through NC, like our office does.
Have more questions about how to buy a house with no down payment? Call us. This is what we do. We help first time home buyers with that first purchase, and we work to be sure you are in the best program for your situation, and that you have the lowest payments available. Call Steve and Eleanor Thorne 919 649 5058.