With the feverish pace at which mortgage rates and home prices are rising, you may feel a sense of urgency to find a new house now, rather than wait until you’ve saved up a large down payment. Or maybe you own property somewhere else, so your down payment is actually tied up as equity until you sell an existing home.
The good news is that even though putting 20% down was long the standard when purchasing property, that’s changing. Today, buyers who have little or no money to put down on a house have several options. If you’re planning on buying a house in Texas with no down payment, peruse the options in our list below to find out which no-down-payment mortgages you might qualify for.
Can You Buy a House with No Down Payment?
The short answer is: Yes! There are certain loan programs that will allow you to purchase a home without making a down payment.
As Nerd Wallet explains, “you may be able to buy a house with no money down if you served in the military, are a rural homebuyer, are a member of a credit union or qualify for 100% financing through certain mortgage lenders. Down payment assistance programs can also make it possible to buy a house with very little money out of pocket.”
Is It A Good or Bad Idea to Buy a Home with a No-Money-Down Loan?
Before you decide to make the biggest purchase of your life without a down payment, understand that there are advantages and disadvantages of doing so.
- No waiting until you save enough, risking interest rates or home prices increasing.
- You still have your savings to spend on moving and setting up your new home.
- You will only need to save enough for your closing costs and earnest money.
Cons to be aware of:
- You’re considered a “high risk” buyer, so interest rates and fees may be higher.
- You’ll be financing the full cost of your home and will pay more per month.
- You will likely have to pay monthly private mortgage insurance and will have no immediate equity.
That last con is important to unpack. If you are unable make payments on your no-money-down mortgage early in the loan term, you’ll probably have to sell your home for a loss. If you are current on payments but need to sell for another reason, and your home has decreased in value due to market conditions, your no-money-down loan balance will be greater than what you can get for the home, and you will take a loss. By the time you factor in Realtor fees and closing costs, the loss will be even bigger.
If your plan is to stay put for a while, you might be ok, but most experts recommend putting something down whenever possible. According to HomeLight, “The five-year rule, as it’s known in real estate, states that new homeowners should generally live in a home for at least five years before selling the property, otherwise they can be at more risk of losing money on their investment.”
How to Buy a House with Little or No Money Down
If you’ve crunched the numbers and determined now’s the right time to buy, down payment or not, here are some ways you can finance your home loan for little to no money:
- VA Loans: If you’ve served in the military and have access to VA benefits, you likely qualify for a no-money-down home loan. Just know that you’ll probably end up paying somewhere between 1.25% to 3.3% in fees if you put nothing down.
- USDA Mortgages: Check to see whether the new home community you’re interested in falls within a zone that’s been labeled “rural” by the United States Department of Agriculture.
- Private Lenders or Credit Unions: Non-government backed, zero-down loans do exist, although there are less of them than there were before the 2008 recession. Some credit unions also offer zero-down loans to qualified customers.
- FHA and Home Possible Loans: These are great for the zero down first-time homebuyer or those with lower credit scores and usually only require about 3% down in order to close.
- Good Neighbor Next Door: Public servant professionals like teachers, police, and firefighters may qualify for as little as $100 down, but the program doesn’t work for new builds.
Want to make a down payment, but don’t have much liquid reserves? Consider:
- Making a 401k loan or withdrawal
- Asking for a gift
- Applying for local down payment assistance programs
Zero-down first-time homebuyer programs also exist. So, if you haven’t ever bought a home or haven’t owned one for at least three years, see what options your lender has available.
Down Payment FAQs
Is it worth buying a house with no down payment?
That depends on how long you plan on staying in it. It’s safer to put some amount down than none, but in this market, waiting is also a risk.
Can you get a mortgage without a down payment?
Yes, some mortgage programs require little to no money down to close for qualified buyers.
What credit score is needed to buy a home with no money down?
620 is usually the minimum credit score for buying a home without a down payment.
If you want to know how to buy a house with no money down instead of waiting until you’ve saved up 20%, know that it’s entirely possible. Just make sure you do your research and are well-informed before you make this important decision for you and your family.
Is a down payment the only thing standing in the way of you and your new home? Don’t let that stop you from exploring your options.
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