Can you afford a mortgage payment but are low on cash? Would you like to buy a house now before prices and rates go up even more?
Here are four ways to get into your own home with little or no money down.
1) USDA zero down loan. The property cannot be in a highly populated city, but it doesn’t have to be way out in the country either. To check out property eligibility, see here.
2) Use a state bond for the down payment. All states have various programs that either provide the down payment or lend you the down payment with zero interest and no payment, to be paid back at the end of the loan. To check out options for your state, contact your local mortgage broker or full service mortgage lender (not big bank).
3) Use gift money for the down payment. A conventional loan has 3% down, FHA loan 3.5% down. Both allow gift money from family for the down payment.
4) VA loan is zero down for U.S. Veterans. This is a nice thank you for serving our country. Most lenders offer the VA loan.
Getting Closing Costs Paid For, Too
All loans have closing costs, which include the lender fees, cost of appraisal, title insurance, and attorney/settlement/escrow fee. In addition, there are property taxes and home owner’s insurance that must be paid for upfront. If you close in the middle of the month, there is a partial mortgage payment called prepaid interest.
The closing costs can be paid for by the seller if you have that written into your Purchase Agreement. (Ask your Realtor to negotiate this for you.) You can also receive a Lender credit toward closing costs. To receive a Lender credit, you take a higher interest rate. (There is no free money in mortgage.)
If you’re tired of paying rent, I encourage you to apply for a mortgage now, because interest rates are and will continue to rise, which means your monthly payment goes up. Don’t assume you cannot qualify for a home loan. Many people who feared that might be the case are now happily opening the door to their own home!
Please help pass on this encouraging news to others via social media. Thank you!
Good news for home buyers needing a zero down loan! The USDA has just announced that
funds are now available for 100 percent financing — and at better pricing than last year! Here are the details.
No down payment. 30-year fixed rate, no prepayment penalty. Interest rates are competitive with conventional loans.
The USDA Fee (now 1%, previously 2.75%) is financed into the loan. Other eligible closing costs may also be rolled into the loan, or you may use gift money, grant money, or a seller contribution to pay for the closing costs. This means you need very little out-of-pocket cash to become a home owner.
The monthly mortgage insurance (MI) fee has been reduced to only .35% (previously .5%).
Credit and Debt Ratio
Perfect credit not required. If you had a late payment, collection/charge-off, bankruptcy, or even a foreclosure in the past, you might still qualify. In general, underwriters want to see at least 12 months of good credit to show you have recovered from the past and are on track.
Debt-to-income ratio should not be over 41% unless your credit score is over 660. In that case, there is more flexibility. (DTI is calculated with your gross income before any deductions, using your proposed housing payment plus minimum required payments on your credit report. You do not count living expenses such as transportation, cell phone, food, etc.)
You can earn up to 115% of the area median income. Number of people in the family is taken into account.
97% of the U.S. is USDA-eligible. Homes located in large metropolitan areas are ineligible. Many suburbs, charming towns, as well as rural areas qualify.
To check both income and property eligibility, click here. Or, speak with your state licensed mortgage loan officer. If you are in WA or CA, I am available to help you.
FHA – Federal Housing Administration
(Often referred to as a first-time home buyer’s loan; although, you needn’t be a first time buyer to get it.)
580 to 620 (depending on the lender and other credit factors)
(Program designed for first-time buyers with average or below incomes.)
Conventional 3% down
VA – Veterans Administration
500 to 620 (depending on the lender and other credit factors)
USDA – U.S. Dept. of Agriculture
640 (most lenders)
No score required with sufficient down payment (Usually 30% to 40% down payment required. Interest rates from 8% to 12%.)
IMPORTANT TO KNOW
- Lenders use your mortgage credit score, not the consumer credit score you get from a free site.
- Lenders use the middle score of three. Scores are not averaged together.
- When there are two or more people on the loan, the score of the person with the lowest score is used.
- Credit score is only one factor in credit qualification. Other factors are public records (such as foreclosure, bankruptcy, judgements, liens), last 12 months’ pay history, etc.
BUY NOW OR WAIT FOR A HIGHER CREDIT SCORE?
Is it better to buy a home with a low score and higher interest rate, or does it make sense to wait until your credit has improved?
That depends, but in general, if you can raise your score in three
months, it is better to wait and take the lower interest rate. On the other hand, if it is going to take a year or longer to raise your score and if house pricing are rising in your neighborhood, then I would buy the house now and refinance in a year or two. That way, you can build wealth in equity while your credit is improving. Most people cannot save money as fast as prices are going up. That said, it is an individual situation that you should discuss with your loan officer.