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Buying a Home with No Down Payment

hand flipping through a stack of money next to a piece of paper that reads - down payment assistance
January 04 2019 • by Andrea Rodrigues • Home Ownership, Home Tips, Loans

If you find yourself constantly stretching your hard-earned dollars, it could be a challenge to come up with a significant down payment for a home. But fortunately, there are some home loans out there that require little or no down payment.

Many borrowers will be happy to learn that a 10% or 20% down payment is no longer a hard and fast requirement for a mortgage loan. Depending on your credit score and a few other factors, you could secure a conventional mortgage these days for as little as 3% down (although conventional loans do typically require the borrower to pay mortgage insurance premiums if the down payment is less than 20%).

And there are also specific types of mortgages that can give borrowers some relief from traditional down payment requirements. These include FHA loans, VA loans, USDA loans, and state-sponsored housing loans.

Here’s a closer look at each type of loan:

  • FHA Loans – With an FHA loan, a borrower can put down as little as 3.5% of the purchase price. The loan is backed by the Federal Housing Administration, so if the borrower defaults on the loan the lender is protected. In return for the low down payment requirement, the borrower pays a mortgage insurance premium. In many cases, FHA loans have relaxed credit restrictions and more flexible qualification requirements than traditional mortgage products.
  • VA Loans – These loans are backed by the United States Department of Veterans Affairs, and are available to active-duty and retired military personnel who meet certain requirements. They’re also available to qualifying members of the Reserves and National Guard, and spouses of service members who have died in the line of duty or as a result of a service-related disability. With a VA loan no down payment is necessary, and VA loans do not require the borrower to pay mortgage insurance premiums either. Like FHA loans, VA loans typically offer reduced closing costs and more lenient credit requirements than traditional home loans.
  • USDA Loans – Although many people think of farms when they hear the term “USDA loan”, these types of loans can be used to purchases properties in many seemingly suburban communities as well as traditional rural areas. Properties in areas of Massachusetts such as Dartmouth, Westport, East Freetown, Wrentham and Lakeville could be eligible for USDA loans, as could properties in areas of Rhode Island such as Little Compton, Richmond, Narragansett, and West Greenwich. To get a better idea of the properties near you that are eligible for a USDA loan, visit USDA loans typically offer competitive interest rates, and because they’re backed by the United States Department of Agriculture, they do not require the borrower to make a down payment.
  • State Housing Loan Programs – Many states have housing agencies that team up with financial institutions to offer special mortgage products aimed at making home ownership as attainable as possible for members of the community. BankFive, for example, offers home loans to qualifying buyers in Massachusetts through the MassHousing program. There are even loans specifically available to buyers in Attleboro, Fall River, New Bedford, and Taunton through MassHousing’s Buy Cities program. Likewise, BankFive offers home loans for qualifying purchases in Rhode Island through the Rhode Island Housing program. Through partnerships with these state-sponsored programs, financial institutions can provide assistance to qualified borrowers who may otherwise be denied a conventional mortgage. Benefits of these types of loans include low- and no-down payment options and lower credit score thresholds than traditional mortgage products.

A sizable down payment can be a great way to minimize your monthly mortgage bill and can prevent you from having to pay mortgage insurance. It can also help you to gain instant equity in your home. However, not everyone has enough money saved up to be able to put a considerable amount of money down on a property. For buyers who don’t have enough cash on hand for a 10% or 20% down payment, federal and state-backed loans can provide the assistance necessary to make dreams of home ownership a reality. For more information about whether an FHA, USDA, VA, MassHousing, or Rhode Island Housing loan could be a good fit for you, contact us today!