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5 Home loan options with zero down payment or a small down payment


5 Home loan options with zero down payment or a small down payment

Homebuyers are always looking for good home loan options that can suit their finances. So, practically with a low budget, they always opt for a zero down payment or even no down payment loan.

Please check the following options and choose your desired home loan options with zero-downpayment or low-down-payment.

FHA home loans

The FHA loan is one of the best options a borrower can take out due to its flexible requirements.

a. Down payment requirement

3.5% only required. However, you can get 100% of the down payment amount as a financial gift from a relative or a friend. The monetary gift from relatives will be considered as a non-profit item.

b. Eligibility criteria

Only U.S. citizens and permanent residents are eligible to apply for this loan. You don’t have to be a first-time homebuyer to qualify for an FHA loan.

c. Credit requirement

Borrowers don’t need a high or a good credit score to qualify for this loan. Few lenders approve FHA loans with as low as 580 FICO scores. But, some lenders might also ask you for a 620 credit score.

The FHA lender might charge you an upfront premium of 1.75% on the total home loan mount. The annual premium will be 0.8% on a 30-year loan with minimum down payment.

2. VA home loans

Homebuyers with current or former military service have the option for getting VA home loans with no down payment option. It’s often considered the best option for ex-military individuals as it offers 100% financing and does not require a high credit score.

a. Down payment requirement

0% downpayment required. But, those who want to make a down payment can put any amount they want to.

b. Eligibility criteria

Eligibility depends on the duration of your military service. Minimum required service (if working currently) is 90 days. If you are an ex-military personnel, you must have served 2 years on active duty.

c. Credit requirement

VA loans normally require 620 and above FICO score to become eligible. But, some lenders might allow individuals with low credit scores.

The lenders will consider the size of the down payment, service duration, service type (regular/ex or Reserves/National Guard), and the number of VA loan(s) or any other loan taken by the veteran.

The VA funding fee may vary if you want to use the loan for purchase and construction purpose. The funding fee can be as low as 1.25% or as high as 3.3%, depending on various aspects. First-time buyers with no down payment have to pay 2.15% funding fee. 2.4% will be applicable on personnel working in the Reserves or National Guard.

3. USDA home loans

USDA loan is also known as the Rural Development (RD) or Rural Housing loan. Individuals who want to buy homes in non-urban areas may get 100% financing with no down payment option through this loan.

a. Down payment requirement

This is one of the best home loan options with zero down payment.

b. Eligibility criteria

You must check your area’s USDA eligibility in the map on USDA's website that highlights eligible areas. You should do it before buying home in the suburban and rural areas. Nearly 97% of U.S. land area and suburban neighborhoods across the U.S are eligible as per the USDA rules.

The homebuyer's’ annual income must not exceed 115% of his area’s median income.

c. Credit requirement

Credit score requirements are low for a getting a USDA loan. Your application may be approved easily with a score above 640. Individuals with lower scores may require submitting additional paperwork, but the application will be considered eventually.

The USDA home loan comes from a bank, and it comes without a mortgage insurance. The USDA levies 1% upfront guarantee fee and an annual guarantee fee of 0.35% of the loan balance.

4. Conventional 97

The Conventional 97 loan is offered by Fannie Mae. This loan has fewer eligibility restrictions compared to other conventional loans.

a. Down payment requirement

You’ll require 3% down payment for this loan. You can arrange the money from a financial gift from relatives or other sources.

b. Eligibility criteria

First-time home buyers and repeat buyers are eligible for this loan. The income limit requirement is nil, so as the requirement of
homebuyer education courses.

It has no upfront fee like FHA, VA and USDA loans. However, you might have to pay monthly payments towards private mortgage insurance (PMI), if your down payment is lower than 20%.

c. Credit requirement

You’ll require good credit scores for conventional 97 loan program. For individuals with lower credit scores (below 720), it is not a suitable option. They might choose FHA option, as FHA does not increase mortgage insurance rates for lower credit scores.

Your PMI in conventional loans can be canceled if your home equity touches 20% margin.

5. HomeReady mortgage

This mortgage option is backed by Fannie Mae. You’ll be eligible for this mortgage by only making 3% down payment.

a. Down payment requirement

You have to put down only 3% down payment. You can arrange the down payments and closing costs as a gift from relatives and friends.

b. Eligibility criteria

HomeReady mortgages have their income limits. You must earn equal or less than your area’s median income. You must acquire homeownership education online to become eligible.

c. Credit requirement

You’ll require minimum 620 credit score for this loan. But lenders will expect a higher credit score from you. The loan program is built for homebuyers with low and middle incomes.

If you have low credit score, your PMI costs will be compared with the standard conventional 97 loan. PMI amount will be around $30/month if your credit score is 720.

If you want to purchase a home and want to live with your parents, it’s possible that you can add their income in the calculations. You can also add income of your kids if they contribute a part of their earning to your house.

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