Can You Still Buy with No Down Payment on a Home?

July 12, 2011

in Home Buying Guide | Tagged

For many first time home buyers requiring down payment assistance, the idea of putting the traditional 10 or 20 percent down on a home purchase can leave them feeling drained or hopeless. Will they have to sacrifice their dream neighborhood or home size simply to afford a pricey down payment?

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Fortunately, it may be possible for certain buyers to put no down payment on a home and still qualify for a competitive loan. Whether you are short on cash or just don’t want to spend your cash on housing, 100 percent financing can be an attractive option for first time buyers.

Prior to 2007, putting no down payment on a home was a common option for 1st time homebuyers.  However, with mortgage lending practices coming under fire in recent years, the option to finance 100 percent has lost popularity. Yet there are still programs available that provide down payment help for first time home buyers who meet certain eligibility requirements.

100% Financing Options – No Down Payment

USDA Loans – A USDA Guaranteed Loan is a Government insured 100 percent purchase loan. These USDA Guaranteed Loans are only offered in rural areas and serviced by direct lenders that meet federal guidelines. While they may be an attractive option for first time home buyers, there are income restrictions and loan limits that first time home buyers must meet.

VA Loans – The Department of Veterans Affairs (VA) backs loans provided by certain lenders to help qualified veterans, reservists and active-duty service members to finance their homes. For those first time home buyers that qualify, there are flexible income, debt and credit requirements.

ADDI Program – The American Dream Down Payment Initiative (ADDI) provides down payment, closing costs and rehabilitation assistance to eligible individuals. The limit on ADDI assistance is $10,000 or 6 percent of the home’s purchase price, depending on which amount is greater. To qualify for the ADDI program, you must be a 1st time home buyer looking to purchase single family housing. Those who are eligible for ADDI down payment assistance must not earn more than 80 percent of their area’s median income.

90%+ Financing Options

FHA LoansFHA Loans offer a 30-year fixed-rate loan for first time home buyers with a 3.5 percent down payment. The down payment can be a gift from a family member or other grant program, and there is a maximum mortgage amount for each county.

Fannie Mae HomePath Loans – Fannie Mae HomePath offers a five percent down payment program on many of their foreclosed properties. To be eligible, you must have a minimum 660 credit score.

1st Time Home Buyers Down Payment Assistance Programs

If you’re a first time home buyer and don’t qualify for any of the above scenarios, you may be wondering where you can find down payment help. Fortunately, there are multiple options when it comes to down payment help for first time home buyers.

Junior Loans – Many banks offer Junior Loans to first time home buyers, which are typically smaller loans (under $50,000) that help buyers meet tough down payment requirements.

Gifts and Gift Registries – An increasingly popular option for buyers is to register for down payment gift registries, which allow family and friends to donate funds in lieu of buying a traditional wedding, birthday or graduation gift.

Tax Refunds – Buyers who typically receive a refund on their income taxes can easily put the extra cash toward a down payment.

Seller Negotiation – A less popular, yet worthwhile option may be to negotiate a donation of down payment funds from the home seller. Because of the extreme home surplus in recent years, many sellers are willing to negotiate untraditional payment terms or purchase agreements. It may be possible that the seller will consider giving you a portion of the home down payment in lieu of reducing the home price.

Regardless of your financial situation, buying a home is a big decision and all financing options should be considered carefully. With the right resources at hand, you’ll be prepared to make an offer on your dream home in no time.

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