Purchasing one's dream house is more attainable than many people think. The endeavor of homeownership often becomes daunting because of the significant cash that is required upfront to pay for most mortgages. The problem for some is that socking away cash for a down payment while also paying rent can be tough.
But, prospective borrowers should not despair. There are mortgage options out there that cater to potential homeowners who are unable to save the standard 20% of the loan amount and do not really want to delay their home purchase any longer.
Consider this: The median down payment for a home purchased in early June 2021 was $27,850, according to Motley Fool, although this number can vary by state. And, the median down payment percentage was 12% of the home’s value, according to the National Association of Realtors.
It’s no wonder that a recent homebuyer.com survey revealed that 38% of potential homebuyers say saving for a down payment is their largest roadblock to homeownership. Given that the median home sale price is $356,700, the average first-time buyer would, in reality, have to spend $24,969 on a down payment.
But a borrower can purchase a house without having $25,000 at the ready. Despite the initial steep hurdle, there are alternatives available to those who want to own a home even if they do not have the necessary cash at hand.
One of these options is a no-down-payment mortgage, which permits first-time homebuyers as well as repeat buyers to purchase a home without spending out of pocket, although they still might have to pay standard closing costs.
No-Down Payment Mortgage Option
One of the ways to get a mortgage with no down payment is to utilize a loan that is backed by the government. The government backing means that the lender does not have to take on all of the risk if the borrower defaults and foreclosure happens as a result. This also motivates lenders to offer borrowers more favorable loan terms.
The easiest way to purchase a home with no money down is to utilize a government-backed mortgage. The Department of Veterans Affairs (VA) loan and the US Department of Agriculture (USDA) loan programs both allow no out of pocket expenses.
VA loans — which are available to veterans and their surviving spouses — are offered by private mortgage lenders including banks, credit unions and mortgage finance firms, as well as loans that are partially guaranteed by the VA.
Meanwhile, the USDA offers mortgages with 100% financing under a program called the “Rural Housing Loan” or “USDA loan.”
The USDA Rural Housing Loan is not just for a “rural loan” — it is also open to buyers in several neighborhoods that are considered suburban. But, major cities are not covered under the program. The USDA’s aim is to assist “low-to-moderate income” borrowers throughout most of the U.S. About 97% of the country’s landmass is eligible under the USDA’s definition.
On top of these, there are some types of mortgage loans available that provide low down payment with as little as 3% down. These include Federal Housing Authority (FHA) loans and conventional mortgages. With these loans, though, it’s important to note that mortgage insurance is usually mandated.
Firefighters, K-12 teachers, law enforcement officers, and people in other specialized jobs could be covered under HUD’s “Good Neighbor Next Door” or GNND program. This is how it works: Once the Department of Housing and Urban Development (HUD) becomes the owner of a home located in a revitalization area, the agency lists these homes for 50% of the market-value price. But, they are only available to GNND borrowers initially.
There is also help out there for homebuyers who do not have a lot of cash, including resources for down payment assistance. If a borrower is able to qualify for many down payment assistance programs, these could be put together to make up a bigger down payment. Many of these programs do not restrict the prospective homeowner from putting the grants together.
Other Options
For those who are finding it difficult to save up for a down payment, a family member might be able to assist them in their quest to buy a home. They can utilize these gifts for down payments with many loan products, such as the FHA’s 3.5% down loan, or those conventional loans that require only a 3% minimum down.
Also, in certain cases, the owner of the property might agree to sell the house under the terms of the current mortgage on the house. This is called an “assumable mortgage,” which means that the seller can sign their mortgage over to the buyer, but one major caveat is that the mortgage must be an FHA loan.
Indeed, many prospective buyers no longer have to wait to save thousands of dollars. There are options out there for certain borrowers that would allow them to be homeowners while avoiding the typical hurdles that stop people from owning their dream house.
If you’re interested in learning more about loan programs that could help you finance a down payment, reach out to Arrive Home to find out more.