Can I Buy a Home With No Down Payment?
The greatest barrier to purchasing a home for first-time homebuyers is the down payment. Many prospective first-time homebuyers qualify for a home loan but do not have the funds to set aside for a down payment. With inflation increasing in the last couple of years and the cost of living appreciating at rapid rates, saving for a down payment has only become more challenging.
Most mortgage loans require a minimum 3.5% down payment. But did you know that not all mortgage loans require a down payment at all?
No Down Payment Necessary
There are two types of loans that do not require a down payment, and these are VA loans and USDA loans. There are other qualifications that you will need to meet to qualify for a VA or USDA loan, but a down payment is not necessary.
There are still advantages to making a down payment. A sizeable down payment can lower your mortgage rate, decrease your monthly payment amount, lower your interest expenses over the life of your loan, and reduce your mortgage insurance premium.
More Down Payment Options for First-Time Homebuyers
Maybe you can’t afford a down payment or maybe you simply don’t want to deplete all your savings on the purchase of your home. Whatever your reasons, there are other creative alternatives to saving for a down payment.
Gifted Funds
If someone in your family is able and willing to gift you the funds necessary for a down payment, this is a simple way to offset these costs for yourself and diminish the financial stress of the home purchasing process.
Down Payment Assitance
There are several state-sponsored home buyer programs, including down payment assistance grants for FHA loans. Certain qualifications and criteria are necessary to receive this kind of assistance, but it never hurts to explore these options and see if you qualify.
Sale of Assets
If you have any investments you can cash out on or valuable items you can sell–jewelry, antiques, etc.– this can be a savvy way of building up funds for a down payment. Be sure to carefully weigh the advantages and disadvantages of letting go of investments and items that you may benefit from retaining in the long-term.
401(K) Loan
You also may be able to borrow from your 401(k) plan to fund a down payment. For some, this is a cost-free option since you can access 401(K) money without incurring a tax penalty. However, there are repercussions to using your retirement assets. You may be required to immediately repay the borrowed funds if you leave the company. Your ability to build your nest egg will also lag considerably.
Budgeted Savings
Saving a little extra month is one of the least risky methods of raising money for a down payment. Saving for a down payment can also be a great budgeting exercise to prepare for the extra expenses that naturally come along with a mortgage and homeownership. This slow and steady method of saving, however, is not necessarily conducive in a fast-paced housing market where prices are rapidly increasing. It’s all about weighing your options and making the decision that best suits your financial needs and interests.
Personal Loan
One of the riskier, but still viable options, for down payment funds, is taking out a personal loan. Some mortgage programs will not allow you to take out a loan to fund your down payment. Taking out a loan for your down payment will negatively impact your debt-to-income ratio and your credit score, both of which are major factors in qualifying for a mortgage loan. Personal loans also tend to have incredibly high-interest rates, much higher than the interest rate on any mortgage loan.
If you want to try and buy a home but do not have the funds for a 3.5% down payment, you may still be able to purchase a home. There are options available and not having the funds available for a down payment does not rule you out of the housing market.
Contact a Loan Specialist
The best way to determine your eligibility for a home loan and understand all your options is to speak with a loan specialist. At VeteransLoans.com, our loan specialists can determine if you qualify for a home loan and walk you through the loan application process. Call (888) 232-1428 to speak with a loan specialist today!