Different Loans for buying a Home
Buying a home is considered by many as the “American Dream.” This “dream, ” however, is often not obtainable by many buyers. One major reason why some buyers cannot buy a home is due to their credit scores. Every loan program and lender is different, however, each one has guidelines when it comes to credit scores. Most lenders will not give a mortgage to anyone without a credit score of 640 or above!
Another big reason why buyers cannot purchase a home is due to not having enough money, or no money! Buying a home is not cheap, but it can be done with little or no money! There are different types of loans, , but buyers in general!
What does this mean for the buyer who has a 740 credit score but no money available? It means they are now able to buy a home with little to zero of their own money and no longer have to wait several months or years to purchase!
So what type of programs are available for buyers with little or no money? I reached out to my good friend and mortgage expert Luke Skar from to get his advice and expertise on this topic.
First off, thank you Kyle for the opportunity to give my expertise on this topic as it is a very common question that is asked by potential buyers who don’t have any money or very little to work with! Buying a home seems like a daunting task to many first time buyers. After all, it can’t be as simple as getting a loan on an automobile with no down payment, right? While there is a bit more paperwork and time needed to complete a home loan it is still possible to purchase a house with either zero down payment or very little down payment.
There are actually multiple ways to buy a home without a down payment. In addition there are some other considerations potential buyers need to understand when using this kind of buying strategy. Listed below are the different ways to buy a home without paying 20% down.
1st Method: VA Home Loan
The Veterans Administration (VA) oversees the rules for lending mortgages to veterans. The VA does not issue the loans itself but instead grants authority to banks, mortgage lenders and credit unions to offer VA mortgages.
For Veterans that meet the proper qualifications, a is a great way to purchase a home. First of all, the loan amount can be equal to 100% of the home’s appraised value. Secondly, it is possible for the seller to pay up to 6% of the purchase price in closing costs. Third, the VA is not as strict on credit guidelines as some other mortgages. And fourth, the VA home loan guidelines only use one ratio test to determine if the veteran makes enough money to pay for the home, their current debt and expected living expense.
2nd Method: USDA Mortgage
To some people it may sound strange to hear the acronym USDA associated with a mortgage. That acronym stands for the United States Department of Agriculture. This organization offers funding that will allow borrowers to receive a loan equal to 100% of a home’s appraised value or the selling price, whichever is lower. In addition, much like the VA mortgage, sellers are allowed to pay the closing costs of the mortgage up to a maximum of 6% of the loan amount.
The main caveat to using the is that the potential home must be within a zone that has been labeled as rural by the USDA. However, that term is a bit misleading to most potential buyers. Most states throughout the country have multiple areas that are zoned as rural. In fact, the outer lying areas of most large cities have at least one area that is a rural zone. Your mortgage lender can look up the address for a potential home and let you know if the property is in the right zone.
3rd Method: FHA Mortgage
For many years the has been the most popular loan for people buying a home with either little or no money to use as a down payment. The Federal Housing Authority (FHA) operates in a manner similar to the VA. FHA does not offer the loan but rather gives permission to lenders to provide the mortgages according to certain guidelines.
The FHA mortgage has lenient credit standards and will also allow the seller to pay closing costs, much like the VA and USDA loans. The FHA is different in that they do require 3.5% of the purchase price to be paid as a down payment. HOWEVER, this money does not have to come directly from the borrower. The money may come in the form of a gift from a parent or other relative. It can also come from a grant for borrowers that live within cities and counties that offer such programs.
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I agree with Michael Cheng. If you have a great credit score, stable, verifiable income, verifiable cash on hand or assets, you are a dream client. By comparison shopping, you will be able to obtain a Loan Estimate from at least three different types of lenders: Talk with the mortgage department of where you currently bank. You already have a banking relationship with them. This is a good place to start. Next, apply with a local, licensed non-bank mortgage lender. Somebody located in the town in which you live. Last, apply with a local mortgage broker.