How to Buy a House with No Money

How to Buy a House with No Money

A common misperception exists that buyers need to make a 20% minimum down payment to purchase a home. In reality, the average down payment on a house is just 12% of the purchase price, according to recent data from the National Association of REALTORS. This number decreases the younger the buyers are, with buyers between ages 31 and 40 paying an average of 10% and buyers between ages 22 and 30 paying an average of just 6%.

The 20% figure is the recommended rate as it is ideal to qualify for a mortgage. A down payment, after all, is seen as a buyer’s investment in their home, and buyers who put more money down upfront are seen as more likely to pay back their loan in full. Lenders who sense less risk may waive extra costs to the borrower, such as private mortgage insurance.

But with a median price of nearly $350,000 in 2021 and a 20% down payment price of $70,000, homes in the U.S. seem unaffordable to many people. In the Colorado real estate market, one of the most expensive states to buy a house, the median home price balloons well into the $500,000 range as of 2023. The good news is that most buyers are paying far less than 20% for a down payment.

Buy a house with no down payment

Is buying a house really possible with no money whatsoever? The answer is yes, through U.S. government loan programs that insure loans from lenders through public federal agencies. However, U.S. citizens seeking to benefit must meet a narrow set of qualifying criteria.

Government-backed loans are a good option for borrowers under a wider, more flexible range of eligibility criteria because they minimize risk to lenders who otherwise may not approve a mortgage. Both of the following programs provide buyers the opportunity to buy a home with zero money upfront:

  • USDA Rural Development Loans are available through the U.S. Department of Agriculture. They are provided for low- to moderate-income households (earning no more than 115% of median household income) and provide 100% financing on homes in eligible rural areas.

  • VA Home Loans are through the U.S. Department of Veteran Affairs. They are available to active-duty servicemembers and veterans. The benefits of this program include low-interest rates and no mortgage insurance required.

FHA loans for first-time home buyers

Don’t live in a rural area? Or you’re not a veteran? First-time home buyers can still purchase a home with a government-insured mortgage and a modestly priced down payment as low as 3.5%.

Federal Housing Association (FHA) loans help first-time home buyers by insuring loans through the U.S. Department of Housing and Urban Development (HUD). This “easy credit qualifying” program has more flexible credit qualifications and is more lenient to borrowers with less-than-ideal debt-to-income ratios. Another benefit of FHA loans is that they can save first-time home buyers money on closing costs such as escrow fees, homeowners insurance, or property taxes. Unlike USDA and VA loans, FHA loans may require the borrower to make monthly mortgage insurance payments.

Low down payment mortgages — as low as 3%

Beyond the public sector, private lenders provide conventional mortgages that can still be a viable choice for those who wish to purchase a home while saving money on their down payment. Paying mortgage insurance may be needed, but it can be cancellable by meeting conditions such as gaining 20% equity — that is, gaining 20% value in property ownership through loan repayment.

These private mortgage investors all present inexpensive options with minimal money necessary upfront:

  • Fannie Mae's 97% Loan-to-Value (LTV) options can be accessed by first-time buyers. LTV is a number that compares the loan's value to the value of the property you intend to buy. In other words, a 97% LTV loan amounts to just a 3% down payment. To be eligible, buyers must undertake homeownership education courses.

  • Fannie Mae HomeReady mortgages are available to credit-worthy low-income borrowers who pay a down payment as low as 3%. Borrowers must meet a maximum of 80% Area Median Income (AMI) to be eligible. Homeownership education classes are also a requirement to qualify.

  • Freddie Mac Home Possible mortgages for low-income borrowers are nearly identical to the Fannie Mae HomeReady mortgage. Buyers also pay as low as 3% for a down payment and qualify with a maximum of 80% AMI.

Down payment assistance

Additional possibilities are worth exploring to obtain assistance with a down payment. The HUD maintains lists of resources to support Americans in achieving homeownership for each state. Potential homeowners who want to purchase real estate in Colorado can learn more about a down payment or other homeownership assistance programs offered by county, city, or statewide.

Your employer may also offer assistance through Employer Assisted Housing (EAH) programs. A Human Resources or personnel representative can tell you about employer-sponsored financial aid for home purchases through matching, loan forgiveness, and more.

How your real estate agent can help

For advice on options, a skilled, professional real estate agent is an indispensable source of valuable expertise. At 8z Real Estate, agents are equipped and willing to help you find the best options for your financial situation. Your real estate agent can provide you with the knowledge and resources and connect you to other professionals to broaden your range of financing possibilities and find you the perfect fit. While real estate agents are not lenders and cannot provide financial advice, they can point you toward reputable lenders and sources for financial assistance. 8z partners with specific mortgage advisors to give clients a comprehensive real estate experience.

Real estate agents act as your guide through every step of your home-buying search, offering an objective eye, sharing vital information about the property or local area, and navigating you from negotiation through the close of the deal. If you’re looking to buy real estate in the state of Colorado, get in touch with an agent at 8z Real Estate today.

*Header photo courtesy of 8z Real Estate (Aubrey Gordon)

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