The most surprising comment that we as realtors hear is: “I cannot buy a home because I don’t have enough money saved up for a down payment.” This comment surprises us, because contrary to popular belief, there are still lots of house purchase options available to average people that do not involve a down payment.
Despite the economic downturn and the real estate bubble collapse, many of these options are still available to homebuyers. Even though putting up a down payment is a good idea for most people, there are alternatives.
The most common no-down payment transaction is 100% finance, which takes a number of different forms. In a 100% financed sale, a person puts up no money to take possession of the property. Such sales were very common before 2007, and in fact are still available in a modified form for those who qualify.
Alternatives to No Money Down
Even if you cannot arrange 100% financing, there are many ways in which you can reduce the size of your down payment. These arrangements can include:
- American Dream Down Payment Initiative, which is a federal program that can help qualified individuals by providing up to $10,000 to help with a down payment, closing costs, and some remodeling expenses. To qualify, you must be a first-time home buyer purchasing a single family residence. There are other requirements, so it is a good idea to work with a professional on this program.
- VA Loans, which are available to qualified veterans. Reservists, members of the National Guard, and active duty members of the military can also qualify.
- USDA Guaranteed Loans, which are similar to the VA loans, but they are backed by the U.S. Department of Agriculture and available to qualified individuals in rural areas. This means that some of these loans could be available to people in the Tri-Valley area. We can help you locate professionals that can tell you if you qualify for USDA loans.
- Junior Loans, which are bank loans designed to help first-time home buyers cover a down payment. We can help you locate a mortgage broker that can arrange this kind of financing.
- Tax refund. Any refund you get on your income tax can be used for a down payment. To add icing on the cake, using your tax refund for a home purchase can help you reduce your tax burden for the following year. You should always consult a tax professional before purchasing so you the size of the benefit. We can help you with this process and put you in contact with a good tax professional.
- Seller negotiation. In some cases, it may be possible to have the seller finance the loan to you. With today’s housing market and low rates of investment return, some sellers are looking to provide the financing in order to have an income stream. We are here to help you with any such negotiations and the paperwork involved.
Alternatives to No Money Down
There are also many ways in which you can reduce the size of your down payment. These include:
- FHA loans – the Federal Housing Administration offers a 30-year fixed rate mortgage with a 3.5% down requirement for first-time home buyers. Gifts and grants can be used to cover the down payment if you wish. There are restrictions to this program, so it is important that you work with an experienced mortgage broker when applying. We can help you locate such a mortgage broker.
- Fannie Mae HomePath loans,- Fannie Mae is offering a 5% down payment mortgage on many foreclosed properties. If you have a credit score of 660 or higher, we can help you locate one of these properties. We can also help you locate a mortgage broker who can help you with the loan.
There is no reason why anybody who has a steady source of income should forgo buying a home at today’s historically low rates because they do not have a large down payment available. There are many excellent alternatives that we can help you with. If you are still unsure about the alternatives or unable to decide which one is right for you, give us a call. We are always here to help.