Home buying is one of the biggest decisions many people will ever make. A house is a place where most of us spend the majority of our waking hours. It’s also a considerable expense for the majority of buyers, so take all the time that you need to find the property that best meets your own individual needs.
It can take many buyers several weeks, months or years to save enough money to be able to afford a house. Careful budgeting and spending can eventually pay off. Most homeowners take out mortgage loans that require a certain amount of money be paid upfront, although there are several ways to purchase a house and not make a down payment.
Buying a home in California isn’t always easy. You have to pay attention to market conditions and current economic trends to determine if you’re in a buyer’s market or a seller’s market. Different people will become involved at various stages along the way, and you may encounter delays or other issues from time to time.
You should still be able to achieve your goal of becoming a homeowner in most instances. Determination, patience, and a proactive plan of action can help you succeed. Here are a few things to know if you’re planning to purchase a house without making a down payment.
Some of the most common methods that people use to buy a house and avoid paying any money down are:
1. Veterans Administration loans
VA loans are backed by the United States Department of Veterans Affairs. They are available to active and veteran members of the military and surviving spouses. No minimum down payment is required on these kinds of loans.
No private mortgage insurance is necessary for a VA loan, but the lender may mandate a funding fee. This charge will protect the lending institution if you should happen to default on your mortgage. Lenders may also ask for a certain credit score in order to qualify for such a loan.
VA loans can be acquired with a credit score as low as 500, although several banks, credit unions and other lending organizations look for a credit score of 620 or above. The home that you’re buying also has to comply with safety standards established by the Veterans Administration and it has to be your main residence.
2. US Department of Agriculture loans
USDA loans are secured by the United States Department of Agriculture. They are often available in rural areas to people with low to moderate-income.
USDA loans don’t have a minimum down payment. However, the lender may ask for a guarantee fee to be paid. This fee is assessed so that the lender won’t have to worry about possible loan defaults later on.
The USDA itself also doesn’t have any sort of minimum credit score requirement. Many lenders will look for a credit score of 640 or higher before they can approve borrowers for this type of loan.
3. Physician mortgage loans
People employed in the medical field may be eligible for a physician loan. These loans don’t need a down payment or private mortgage insurance. Physician loans’ proof of employment requirements is usually less restrictive than other types of home loans.
Doctors, nurses, and other healthcare professionals often have a fair amount of school loans that they are still paying off, so the debt to income ratio regulations may be a bit more relaxed by lenders who understand the borrower’s current financial situation.
4. Other types of no down payment home loans
There are other kinds of home loans that don’t ask for a down payment. They can vary from one financial institution to another. You won’t see many of these kinds of loans advertised, because they can be very risky for lenders.
Some credit unions may offer mortgage loans without a down payment. To qualify, you must be a member of that credit union. Certain rules may apply. For example, you may need a credit score of 700 or higher or the loan that’s being requested must be on a property that is your main residence. Keep in mind that you may still need to pay for title search fees, closing costs, and other expenses with these loans.
5. Paying for your house with cash
You could also pay for your home with cash. No down payment or mortgage loan will be necessary because you’re paying for the entire purchase all at once. This is an option that you should only consider if you have the resources to do so. Remember that you’ll also need enough funds set aside for your regular utility bills and any needed repairs, renovations or upgrades to the home after you’ve paid for the home in full.
Advantages and Disadvantages
Buying a home without a down payment has its own distinct advantages and disadvantages. Some of them are:
- You will have more disposable income that can be used towards upgrades or other items (unless you pay for the house in cash).
- You can also own your home in less time than in many traditional home sales.
- You may not need to spend as much time and effort saving to be able to afford the house that you want.
- Earnest money, closing costs, title search fees and other expenses may still need to be paid.
- Your monthly mortgage payments and interest may be higher.
- It can take longer to build equity in your home because you didn’t pay anything upfront.
Deciding whether or not to acquire a house without making a down payment is up to you. Consider all of your options very carefully and be sure to read the terms and conditions of any contract offered to you carefully. Feel free to shop around until you find the best alternative for you.
After you’ve secured your financing and had your offer accepted by the seller, it won’t be long until you’ll become a homeowner. All final paperwork will be signed at closing. The seller will receive their payment for the proceeds from the sale, and you’ll be given the keys to your new house! You can move in whenever you want. It’s time to look forward to spending many years in a wonderful place that you’ll be proud to call home.
📞 Have Questions? Ask The Chris Eckert Real Estate Team
Give The Chris Eckert Real Estate Team a call today at 650.627.3799 to learn more about local areas, discuss selling a house, or tour available homes for sale.