For many potential homebuyers, the largest factor in moving from renter to homeowner is the down payment. Even though some mortgages get you into a property with a low down payment, some buyers have less than that to apply to the purchase price. The good news is, if you need to buy a house with no money down, there are options available.
Active or retired military personnel and their surviving spouses are eligible for no-down-payment, 100-percent-financed mortgages from the Department of Veterans Affairs. The interest rates on VA loans are usually quite low, they don't require mortgage insurance, and the VA is flexible for potential buyers with low credit scores.
Rural Housing Loans
If you're looking for a house away from the hustle and bustle, a loan from the U.S. Department of Agriculture may be just the thing. The USDA offers a no-money-down loan that is often referred to as a Rural Housing Loan, though it doesn't apply only to rural areas. The loan, which is targeted at low- to mid-income buyers, includes homes in smaller cities and less-populated suburbs as well.
State and Local Grants
Many states and communities offer grants or other programs that can help homebuyers who do not have a down payment. The National Council of State Housing Agencies and the federal government's USA.gov site are both excellent places to start your search for programs in your area.
Gifts and the FHA
Many buyers who are strapped for cash go with Federal Housing Administration loans, which require a 3.5 percent down payment. However, unlike most loans that require the buyer to provide that down payment, with an FHA loan the money down can come in the form of a gift or a loan sometimes called a silent second from a relative, friend or private investor, making an FHA loan a true no-money-down deal. Be sure to consult an attorney and a mortgage professional before borrowing money for a down payment, as lenders have strict rules that limit or prohibit borrowed funds.
To avoid a down payment, you can forgo a traditional mortgage completely and find a private lender. This is typically a high-net-worth individual who is looking for a better-than-average return on his money. Finding a private lender will likely require a lot of legwork on your part, and your interest rate may be higher than prevailing mortgage loans, especially if the lender finances 100 percent of the purchase price.
Let the Seller Help
In addition to private lenders, a number of additional creative financing methods can help you buy a house with no money down. Seller financing, in which the person selling the house creates and holds the note on the property, is one such strategy. Another is a lease option. With this method, you initially lease the home from the seller with the option to buy in the future, with your monthly payments counting toward some portion of the sale price. You might also be able to assume the seller's original mortgage and take over their payments. You should seek professional legal advice for a loan assumption and find out if assumption is acceptable under the terms of the mortgage.