Low and No Money Down Home Loans
Buyer season 2015 is upon us, and that means mortgage shopping for many. Many first time buyers and even second time buyers aren't aware of some of the amazing loan products available for purchasing a home with little or no money down. So, I compiled a handy list for those in the market, including some state specific programs.
Some buyers think that many of these are only loans for first time buyers. You don't necessarily have to be a first time buyer to qualify for many of these loan types. These loans all have various credit score and debt-to-income requirements and some with additional criteria to meet eligibility, but not as hard as many might think.
It's worth your time to explore more topics for Buyers, or also take a look at our First Time Buyer Resource Tool Box and bookmark for later. You can always come back to our blog and choose the Buyer Category for this post and others.
Mortgage Shopping & Types of Home Loans
Review the different loan types below, but before you go shopping for low down payment or no money down home loans there are a few things you should know.
First, your credit score will take a small hit for having your credit pulled, when you're shopping home loans for rate comparisons, it's important to have whichever lenders you approach pull your credit within two weeks. This way credit reporting agencies see it as shopping and you don't suffer the additional hits to your credit.
Make sure you have all the necessary documents handy. Lenders are going to want to see things like tax returns, W2's and 1099's. If you're shopping for a home and a loan in Ohio, you can request pre-approval from the links provided and our home loan services will match you with appropriate, preferred lenders Berkshire Hathaway HomeServices Professional Realty has trusted relationships with.
- FHA and FHA 203k Renovation Loans 3.5% down (one of my favorites)
- Fannie Mae 97% Conventional Loan 3% down
- VA Financing No Money Down
- Navy Federal No Money Down
- USDA No Money Down
- State Down Payment Assistance Programs
- City and County Down Payment Assistance and Programs
Note: Most loans with less than 20% down require the borrower to pay PMI (Private Mortgage Insurance) which protects the bank. There are, however, loans with under 20% down payment that don't require this insurance premium.
FHA and FHA 203k Renovation Loans
Only 3.5% down, FHA and FHA 203k Renovation Loans are one of my favorite type of loan products, many first time buyers don't realize they cannot do the repairs themselves on distressed properties if they are financing. FHA and FHA 203k loans don't require as high a credit score, with some lenders able to work with scores of 580 and up.
Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). The maximum ratio to qualify is 43% debt to income. Simply divide the debt by the gross monthly income. As you can see, you need to have "wiggle room" for some items. If you're just starting out with your quest for a home purchase, now is a great time to pay down debt.
FHA 203k loans for homes that need repairs are a wonderful way to get a home and fund the repairs. You do get some choice with materials and colors, like siding, carpet, paint or if you're doing the kitchen a choice of cabinet style and wood for instance. All work will be done by a certified FHA contractor.
Fannie Mae 97% Conventional Loan
Less expensive than the low down payment FHA loan at 3% vs. 3.5% the down payment may come as a gift. In many respects, it's more aggressive that the FHA's benchmark mortgage product in that guidelines are simpler and less-restrictive. On a $200,000 home, an FHA loan would require a $7,000 down payment, whereas the Fannie Mae 97% conventional loan would be $6,000. This loan can be used for refinancing too, though you may want to consider HARP first for better terms.
VA Financing - No Down Payment
A great way to purchase a home with no money down for qualified veterans, home must be in moved in condition and approved by the VA. Private lenders originate VA loans, which the VA guarantees. There is no mortgage insurance. The borrower pays a funding fee, which can be rolled into the loan amount.
The VA funding fee varies, depending on whether the veteran served in the regular military or in the Reserves or National Guard, and whether it's the veteran's first VA loan or a subsequent one. The funding fee can be as low as 2.15 percent or as high as 3.3 %.
Navy Federal - No Money Down
Navy Federal Credit Union, the nation's largest in assets and membership, offers 100 percent financing to qualified members for buying primary homes. Credit union eligibility is restricted to members of the military, some civilian employees of the military and U.S. Department of Defense, and family members. Due to economic climate conditions, Navy Federal had stopped doing no money down loans, but resumed in 2010.
The credit union's zero-down program is similar to the VA's. One difference is cost: Navy Federal's funding fee of 1.75 percent is less than the VA's funding fees.
USDA - No Money Down
This too is another one of my favorite loan types, and more areas qualify for USDA financing than many know. Homes must be in move in condition and meet further qualifications in addition to being in a USDA approved area.
State Down Payment Assistance Programs (OHFA)
You may want to ask your Realtor about programs in your state. Here in the Buckeye many buyers make use of OHFA when USDA won't work for their area. Ohio Housing and Finance Authority offers loans with forgivable grants of 2.5% towards the purchase. For example, if you are going FHA with 3.5% down and qualify for OHFA down payment assistance, your total down payment equates to 1%. Make the payments for five years and the 2.5% is dismissed and can save buyers a ton of money.
Another wonderful Ohio state program is Ohio Heros, saving .25% on mortgage rates for qualified buyers such as military, firefighters, policemen, teachers, paramedics and others.
City and County Down Payment Assistance and Grants
Every year, various cities and counties across Ohio (check with your Realtor for your state's offerings) provide first time buyer grants, though you may not necessarily have to be a first time buyer. In many cases you only cannot have bought a home in the last few years. These grants can range from $2,500 to $25,000, and sometimes any excess can be applied to home improvement.