Many people in the market for a home are asking themselves one big question: “How much money will I need to put down?” This is an important question, and we’re happy to tell you that the answer can be $0 dollars and zero cents. (Yes, you read that right).
In this article, we’re going to show you five practical, modern, and accessible ways to buy a home for zero down in 2022. It’s time to live your dreams of becoming a homeowner.
Buy a Home for Zero Down (Yes, Really)
It’s important that you know what we mean when we use the phrase ‘zero-down.’ A zero-down mortgage loan is any home loan that you can get that requires absolutely nothing as a down payment. Typically the down payment required is a percentage of the total amount of the loan you’re getting. This is typically paid when closing on your new home.
Coming up with this money is one of the most common and difficult challenges to overcome for people trying to become home buyers. That’s where these methods come in.
Are Zero Down Loans Still a Thing?
You might be asking yourself, “Do zero-down loans still exist? The answer is absolutely and emphatically yes. In the late aughts (2008, to be exact), a rash of zero-down loans to people with bad credit caused a housing collapse. Those days are long gone, and things have changed substantially. Zero-down loans still do exist for people with good credit.
Here are five ways that someone just like you with good credit can get a zero-down loan in 2022. Let’s get started.
1. Buying a Home for Zero Down
Okay, so for this entry, it’s not strictly zero down– but this method helps countless people each year get into their first home.
Even though this method isn’t zero down, it’s for much less down than other conventional loans, and can help you get into a home if the other methods don’t seem to be achievable for you. In our final entry on our list, we’re going to talk about…
A Federal Housing Administration (FHA) Loan
A loan from the Federal Housing Administration (most commonly called an FHA loan) is a mortgage that’s actually backed by the government. FHA home loans typically require lower down payments and minimum credit scores than other conventional loans.
These loans are an especially great choice for first-time home buyers. (In fact, in their annual 2020 report, the FHA stated that 83% of all of their loans were for first-time home buyers).
Here’s the great news: FHA loans only require 3.5% down (instead of the standard amount, which can be up to 20%). To put that into perspective, a $200,000 home would typically require a $40,000 down payment, but with an FHA loan, it would only require $7,000 dollars.
Here are some more details to know about FHA loans:
- They require full documentation
- Closing costs are generally paid by the seller
- You can withdraw from your 401k to help with your downpayment.
Want to see if you qualify for an FHA loan? If so, click the link below.
Search for FHA Lenders
2. United States Department of Agriculture (USDA) Loan
The second type of government-backed loan is one guaranteed by the United States Department of Agriculture (USDA). These types of loans are offered to encourage residential development in suburbs and rural areas across the country.
The most important criteria for this loan is that your new home must be located in an area that the USDA deems eligible. However, the majority of homes fall into the eligible zones of the rural mapping used to determine this, even if the property you are considering isn’t surrounded by farmland. You can check the USDA’s map of eligible areas to see if your home qualifies.
Did you know that over 90% of the zip codes in the USA qualify for USDA loans? It’s true! Everyone thinks USDA only refers to farms, but that’s a misunderstanding. Almost 100% of houses (again, 90%) qualify.
In addition, there are a few requirements that you need to meet yourself in order to qualify for a USDA loan.
- Your household’s combined gross income cannot be more than 115% of the median income of the county where you are considering buying.
- Your FICO score needs to be at least 640
- Your debt-to-income ratio should be no higher than 45%.
If you want to search for a home in your area, see if your area code qualifies by clicking the link below.
Search for USDA Lenders
3. Find a Rent-to-Own Home
Rent to own homes are exactly what they sound like– and are a little-known gem when it comes to getting into a home. A rent to own home is a home you lease for 1 to 3 years, and then at the end of the lease you can qualify for a home loan to purchase the home you’ve been leasing.
One of the major benefits of rent to own homes is that you have the opportunity to build your credit while renting so that you can qualify at the end of your lease.
The contracts for rent-to-own homes are far more varied than standard mortgage loans. So it may be possible to negotiate with the seller of the property to pay nothing as a down payment. Depending on the arrangement outlined in your lease agreement, a portion of your monthly rent payment could even go towards covering most of these kinds of upfront costs when you go to purchase the home.
As all of this is heavily dependent on the details contained within your particular agreement, it is highly recommended that you hire a real estate lawyer to help you navigate these kinds of contracts.
Check out local listings here.
Search Local Rent-to-Own Listings
4. Gift of Equity
This is a less popular, and one of the more restrictive options when it comes to zero-down loans– and it involves buying a home from a family member.
An equity gift is when a close family member (such as parents, grandparents, cousins, or in-laws) sells you their home for less than the appraised value. This gift of equity is the difference in price between the actual value of the home and the price it is being sold to you for. If this happens, you are immediately granted more equity in the home than you would be if you were paying the price of its full appraised value.
Another thing to consider is that your family member could sell you a home for $200,000 and also give you a gift of equity (20% of the value) for your downpayment.
There is a limit to how much of a deduction can be given before the seller may be required to pay taxes on that gift, but it could total as much as $60,000 (for you and a spouse). And, depending on the conditions negotiated by your lender, this gift of equity could suffice as a down payment on your mortgage loan.
5. Veterans Affairs (VA) Loan
The last method that we want to discuss– a Veterans Affairs (VA) loan– is one of a few government-backed loans on our list. Note that government-backed loans are guaranteed by a government agency and therefore less risky for the mortgage lender. This allows these lenders to relax their normal criteria and extend offers to homebuyers with riskier financial positions, such as those without a down payment.
VA loans are for active-duty servicemembers, members of the National Guard, Reserves veterans, or qualified surviving spouses of deceased veterans are all individuals who may qualify for this type of loan. These loans are guaranteed by the Department of Veterans Affairs and can offer qualified buyers the ability to take out a mortgage loan with zero down payment.
Many lenders still require a minimum credit score in order to qualify for a VA loan. In addition, you must specifically meet any one of these service requirements:
- Served 90 consecutive days of active service during wartime.
- Served 181 consecutive days of active service during peacetime.
- Served for more than 6 years in the National Guard or Reserves of at least 90 days under Title 32 orders, with at least 30 of those days being consecutive.
- Be discharged by reason of service-connected disability.
- Be the spouse of a service member who died in the line of duty or from a service-related disability.
It’s fairly simple to apply. Using your DD214 to apply, you’ll receive a certificate of eligibility. You’ll then be able to bring your eligibility certificates to your lender.
If you want to search for a home you qualify for, click the link below.
Search for VA Lenders
BONUS TIPS: Down Payment Assistance
We understand that you might have reached the bottom of this list and still aren’t able to take advantage of those exact options. If that’s you, no worries! We’ve still got you covered! Even if you are not able to procure one of the methods listed above, you could still qualify for financial assistance with making a down payment on your home.
Down payment assistance (DPA) programs offer grants and loans designed specifically for this purpose – possibly covering a portion or all of your down payment and closing costs. There are currently more than 2,000 of these programs across the nation, many of them run by city, county, or state governments.
Many of these programs require a credit score of at least 640 and are meant to assist first-time homebuyers. But the qualifications vary, so it is well worth it to do your research.
Here are the four basic types of assistance that these programs fall under:
- Grants: Money given as a gift that never has to be repaid.
- Loans: A second mortgage that is paid alongside your primary mortgage on a monthly basis.
- Deferred Loans: A second mortgage where the payments are deferred until you move, sell, or refinance.
- Forgivable Loans: A second mortgage that is forgiven over a specific number of years (usually 5, but sometimes as many as 15 or 20). These loans are only repaid if you move, sell, or refinance before that time has elapsed.
The Renter’s Best Friend is Here For You
We hope you’ve found this article helpful. Here at The Renter’s Best Friend, we’re committed to helping you get started on the path to ending your renter’s journey forever.
If you have any questions, don’t hesitate to reach out, and in the meantime, we wish you all of the fortune and success as you secure your zero down payment loan.