Saving for a down payment can be one of the biggest obstacles to buying a home. Fortunately, putting 20% down is not a requirement for every mortgage, and some qualified buyers may be able to purchase a home with little or no money of their own going toward the down payment.
The right option depends on your eligibility, income, property, location, and mortgage program. Here are five possibilities worth exploring before assuming you need years to save for a large down payment.
Use a VA Loan if You Are Eligible
VA-backed purchase loans are available to eligible Veterans, active-duty service members, and certain surviving spouses. One of their biggest advantages is the possibility of purchasing with no down payment when the sales price does not exceed the property's appraised value and applicable requirements are met.
VA loans also do not require monthly private mortgage insurance. A VA funding fee may apply unless the borrower qualifies for an exemption.
Consider a USDA Loan for an Eligible Property
The USDA Single Family Housing Guaranteed Loan Program offers 100% financing to qualified low- and moderate-income borrowers purchasing an eligible primary residence in an eligible rural area.
USDA eligibility depends on both the borrower and property. Household income generally cannot exceed applicable program limits, and the home must be located in a USDA-eligible area. Many buyers are surprised to discover that eligible areas can extend beyond what they might consider traditionally rural communities.
Explore Down Payment Assistance Programs
State and local housing agencies may offer assistance that can help eligible buyers cover part of their down payment or closing costs. Assistance can take different forms, including second mortgages and other programs with specific repayment or forgiveness provisions.
Florida Housing offers homebuyer programs through participating lenders, including eligible second mortgage assistance for qualified borrowers. Income limits, purchase price limits, credit requirements, homebuyer education, funding availability, and other rules may apply.
Ask Whether Gift Funds Can Help
If you do not qualify for a true zero-down mortgage, gift funds may help reduce how much of your own savings you need for the purchase.
Depending on the mortgage program, funds from an eligible donor may be used toward the down payment or certain closing costs. The lender will typically need documentation showing the source of the funds and confirming that the money meets the applicable program's gift requirements.
Never assume that money transferred into your account can automatically be used for closing. Talk with your lender before moving funds so they can explain the documentation requirements.
Combine a Low Down Payment Loan With Eligible Assistance
Another strategy is to pair a low down payment mortgage with an eligible assistance program or acceptable gift funds. For example, FHA financing can allow qualified borrowers to purchase with a relatively small minimum down payment, while certain conventional programs may offer low down payment options to eligible borrowers.
When permitted by the applicable mortgage and assistance programs, combining these options may substantially reduce the amount of personal savings needed for the down payment.
Does No Down Payment Mean No Money at Closing?
No. A zero-down mortgage does not necessarily mean you can purchase a home without bringing any money to the transaction.
Buyers may still be responsible for closing costs, prepaid property taxes, homeowners insurance, escrow deposits, inspections, and other expenses. Seller contributions, lender credits, assistance programs, or certain financing provisions may help with some costs, but availability and limits depend on the transaction.
It is also wise to consider how much savings you will have left after closing. Owning a home can bring unexpected repair and maintenance expenses, so using every available dollar to complete the purchase may not be the best financial strategy.
Find Out Which Homebuying Options You Qualify For
You do not need to assume that a large down payment is standing between you and homeownership. VA and USDA loans can provide no down payment financing for eligible borrowers, while down payment assistance, gift funds, and low down payment mortgages may provide additional paths to buying a home.
Loan Wolf Lending can help Florida homebuyers review available mortgage programs and determine which options may fit their circumstances. Call 754-755-3075 to discuss your homebuying plans.