Can You Buy a House With No Money Down?
Updated January 1, 1 . AmFam Team
There are many reasons why buying a home can be great, both financially and emotionally. If the dream of having a place of your own is something you’re considering, you’ll need to be really organized during this exciting time.
First off, as you’re already aware, this is a serious financial commitment to take on. And even if your savings seems like a lot to you, it may not be enough to qualify for a standard loan in today’s market. Figuring out how much down payment to make on a house can be tricky. It’s why we’ve put together this review of ways home buyers can get home loans with little — or even no money down.
Do You Have to Put a Down Payment on a House?
Although it’s been customary to put anywhere from 10 – 20 percent down on a home, this is a measure that lenders prefer. It insulates them from loss if the mortgage isn’t paid. And it proves to the lender that you’re serious about buying.
Do you have to put money down on a house? In truth, it depends. Although you may be able to purchase a home with no money down, doing so can limit your mortgage options. And you may find yourself weighed down with a hefty monthly private mortgage insurance (PMI) payment, in addition to a higher interest rate.
Because coming up with that a larger down payment can be difficult, some first-time home buyers are vying for other low down payment alternatives. The good news: you’ve got options when it comes to the minimum requirements for buying a home.
How to Buy a House With No Money Down
Both repeat home buyers and those doing so for the first time can leverage two government-backed programs that can land you in a home with no money down. Although these programs were initially designed to assist those with limited income, they’re viable options in today’s cash-strapped economy. Here are a few options if you’re wondering how to buy a house with no money down:
VA Loan
Backed by the US Department of Veterans Affairs, mortgages of this type are typically offered to former or currently active US servicemembers and their spouses. In addition to being a no money down mortgage option, VA loans are popular among military personnel because they frequently do not require a PMI when lending.
USDA Loan
This option affords homebuyers another zero money down alternative to a standard mortgage. It’s aimed toward home purchases made in rural and suburban areas. Minimum credit rating and income requirements are in play with this type of loan, and most will only halt PMI after at least 20 percent of the original purchase price is paid on the loan.
How Much Do You Need to Put Down on a House?
As much as you’re shopping around for a home, you should also be shopping around for a mortgage. Even with less than 20 percent down, lenders will be eager for your business. Along with the PMI, you’ll probably find yourself saddled with “upfront fees” that you’ll be required to pay. It’s key compare offers because you may wind up saving thousands. If you don’t qualify for either an VA or a USDA loan, you may still be able to get an FHA loan — which requires about 3.5 percent of the total purchase price as a down payment.
Conventional Loan
These are loans and mortgages that aren’t secured or offered by a government entity. Instead, they’re made available through private lenders or by one of the two government-sponsored lending enterprises: Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Although 20 percent down is preferred, lenders may be willing to accept down payments as low as 5 percent.
FHA Loan
These loans are insured by the Federal Housing Administration and issued by an FHA-approved lender. They’re perfect for low-to-moderate income borrowers and don’t require as high a credit score as does a conventional loan. It should be noted that PMI will still be in play until 20 percent of the total cost of the home is paid.
What to Consider When Using a Smaller Down Payment
Because your mortgage payment will be higher with no money down, you may feel like you’re saving money on the purchase — but it’s key to keep in mind that each monthly payment will be impacted by this decision. Almost all major online real estate websites have a mortgage calculator of some sort, so use those while shopping for homes to get an idea of what that monthly note is going to look like. Be sure that the calculator you’re using is also capable of factoring in PMI so you’ll be able to compare and contrast sizable down payments versus home purchases with no money down.
Learn More About Saving for a Home
Once you’ve got a plan in place on how you’ll proceed with your home purchase, be sure to reach out to your American Family Insurance agent (Opens in a new tab). They’ll put together a policy that can cover your home from top to bottom. You’ll find peace of mind with easy-to-understand coverage so you can focus on this next big chapter in your life.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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- Saving for a House
There are a few defining moments in our lives. For some, it’s the realization that buying that first home is within reach, both financially and emotionally. It’s a big step, and it’s one that’s built into the American dream. And if you’re left wondering how much money you should save before buying a house, you’re not alone. These costs can add up quickly.
After you’ve made the big decision to start shopping for a home, you might be surprised to find that coming up with the cash down payment is only one of several financial hurdles you’ll need to clear. Exactly how much you should save for a house depends on a number of factors, like the value of the home you’re targeting and the amount of money you intend on pushing into your down payment.
- Pay Off Student Loans or Buy a House?
After college, life moves fast. You get your first big job, move out of your parents’ house and start a whole new life on your own. For most people, this also means paying off student loan debt from your college tuition. Having this debt may make big milestones like buying a house seem far off, but there are ways to make the leap from renter to homeowner even if you have student loans. So can you get a mortgage while also paying off student debt? Or should you wait to pay it off before you buy a house?
Every situation is different, so it’s important to do the right research and choose the best option for you. Luckily, we’ve done some of the breakdown for you to help you decide whether to pay off your student loan entirely or buy a house.
Can Student Loans Affect Buying a House?
Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.
Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
If the amount of money you bring in monthly or yearly is almost the same as the amount of money you pay out in debts — like student and car loans or credit cards — it may be best to pay down your debt before buying a house.
You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
