How To Buy A House With No Money Down In 2023?

If you ever wanted to know how to buy a home with no money down you have come to the right place. Buying a house with no money down is possible if you can qualify into one of the categories made for this. Let’s get started!

No Down Payment Mortgage Options

There is no money down mortgage options. These provide you with the possibility of buying a house with no money down.

United State Department of Agriculture (USDA) Loans (100% Financing)

The USDA’s Single Family Housing Guaranteed program is one way of buying a house with no money down. There are buyer and property conditions which must be met, though. Therefore, if you are hoping of buying a home with no credit and no money down, this might not work for you. But, if you have credit and are looking for a home in a USDA qualified area this program can help you buy a home with no down payment.

The qualifications for the USDA Single Family Housing Guaranteed program include:

• The Borrower must…
  • Have an income below the income limits for the county where the home is located based on household size, and
  • Meet USDA loan underwriting guidelines including employment, debt-to-income ratio, and credit score requirements which is typically a 640+ credit score
• And, the Property must…
  • Be located in a USDA eligible area. This is typically any area more than five miles from a population center like a city, suburb, or town with a population of more than 20,000 people, and
  • The property must meet the minimum property conditions set by HUD guidelines. The home must be clean, in good repair, and free of health and safety hazards.

Veterans Affairs (VA) Loans (100% Financing)

A second no down payment mortgage option is a VA mortgage. Homebuyers using a VA home loan can borrow up to 100% of the purchase price. Therefore, there is no down payment. However, you must meet the requirements in order to get approved for a VA loan.

First, VA loans are only available to qualifying veterans. In order to qualify for a VA loan you must have served a minimum amount of time in the U.S. military. Your lender will review your DD-214 papers and submit those to the Veterans Affairs Department for your letter of eligibility. A surviving spouse of a deceased veteran can qualify, too, under certain circumstances.

Also, the property will need to meet the minimum property conditions set by the VA. Essentially, the home must be livable, in good repair, and free of health or safety issues.

Indiana Specific No Down Payment Mortgage Options

There are ways to buy a home for sale in Indiana with no money down. Here, I will share with you some programs available to Indiana homebuyers wanting to purchase a home with no money down.

Indiana Housing & Community Development Authority

The Indiana Housing & Community Development Authority (IHCDA) offers down payment assistance programs when buying a house for sale in Indiana. This program constructively works to make it so there is no down payment when buying a home.

The programs at the IHCDA allows qualifying borrowers to get either 3.5% or 6% down payment assistance. The assistance is in the form of a second mortgage. However, there are no interest or payments on this second mortgage so long as the homebuyer does not sell or refinance the home before the end of the forgiveness period.

With an FHA or an insured conventional loan, this down payment assistance is enough to cover the minimum down payment amount. Therefore, you can buy a home with no money down in Indiana by using this program.

You will still need to get qualified for a mortgage. This means reviewing your credit, employment, and debt-to-income ratio. Also, the program is mostly geared towards first-time homebuyers. A first-time homebuyer is defined as a homebuyer who has not owned their principal residence for the last three years. However, there are a few carve outs in the program if you are not a first-time homebuyer.

Contact the Quadwalls Real Estate Team to get started with buying a home using the IHCDA down payment assistance program.

Low Down Payment Mortgage Options

Few options when you want to try buying a house without money. However, there are several low money down mortgage options you should consider when trying to buy a home with little money down.

Federal Housing Administration (FHA) Loans

An FHA loan only requires a 3.5% down payment. This is an excellent mortgage type for homebuyers seeking low to no money down home buying programs. FHA loans give homebuyers an opportunity to purchase a home and have a lower down payment. Here are some of the basics of an FHA home loan:

• Down Payment Amount: 3.5% of the purchase price
• Minimum Required Credit Score: 620
• Debt-To-Income Ratio Requirements: Up to 31% of your income can be for housing, and your housing costs plus long-term liabilities can be as high as 43% of your monthly gross income
• Closing Cost Credit Allowed: Yes, the seller can pay the buyer’s closing costs up to 6% of the purchase price of the home
• Private Mortgage Insurance: Yes, 1.75% of the purchase price at closing, but it can be rolled into the loan. Monthly, the cost is 1/12 of 0.85% of the original loan amount. Private mortgage insurance on an FHA loan can not be canceled.

HomeReady® And Home Possible® Loans (3% Down)

HomeReady® and Home Possible® are low money down mortgage options. These mortgage programs are offered by the U.S. government-backed Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, respectively. Both the HomeReady® and Home Possible® programs are designed to help low to moderate income borrowers purchase homes with low down payments.

• Down Payment Amount: 3% of the purchase price
• Minimum Credit Score:
  • HomeReady®: 620
  • Home Possible®: 660
• Private Mortgage Insurance: Yes, but often lower cost than FHA loans, and is canceled once the buyer maintains a 20% equity position in the home.

Conventional 97 Loan (3% Down)

Another low money down mortgage is a Conventional 97 Loan. These are an excellent alternative to the FHA loan. First, the down payment is 0.5% less. Secondly, the private mortgage insurance can be canceled once the buyer has a 20% equity ownership stake in the home and no expensive up-front private mortgage insurance charge.

The Conventional 97 Loan is one of the best loan products to lower your up-front home purchase costs. Moreover, this is a low money down conventional mortgage. Due to the fact it is a conventional loan, your financing will appear more sound in the eyes of home sellers.

• Down Payment Amount: 3% of the purchase price
• Minimum Credit Score: 620
• Private Mortgage Insurance: Yes, but it is cancellable and there is no up-front private mortgage insurance premium
• Income Limits: None
• Loan Limits: Whatever the conforming loan limit is, which is the maximum amount you can borrower before entering into jumbo loan levels

Insured Conventional Mortgage (5% Down)

An insured conventional mortgage is a low money down conventional mortgage. An insured conventional simply means you are putting down less than 20% and will be buying private mortgage insurance. The qualification guidelines are the same as a conventional mortgage. However, this is not a down payment assistance home loan. An insured conventional loan with a 5% down payment is the best low money down mortgage option when trying to make offers in a competitive housing market.

• Minimum credit score: 650
• Private Mortgage Insurance: Yes, and often costs less than PMI required for an FHA loan. Additionally, the private mortgage insurance can be canceled once the buyer has a 20% equity stake in the home.
• Down Payment Required: 5% of the purchase price minimum
• Income Limits: None
• Loan Limit: Whatever the conforming loan limit is, which is the maximum amount you can borrower before entering into jumbo loan levels

The “Piggyback Loan” (10% down)

A “piggyback loan” is a unique structure that is not as popular as it was in the early 2000s. The jest of it is as you get your mortgage for your home you simultaneously take out a home equity line of credit (HELOC) on the home you will purchase. The purpose of this is to artificially make a larger down payment to avoid paying private mortgage insurance.

Truthfully, the cost of private mortgage insurance is likely less expensive than the costs of this convoluted method of avoiding the need for the insurance product. Additionally, this is not a useful idea for homebuyers who are trying to purchase the home with very little to no money down. Piggyback loans typically start with making a 5% to 10% down payment.

Conclusion

There are ways to purchase a home with no money down. USDA or a VA mortgage are the best ways to do this. However, the USDA program requires a lower income and buying the home in a rural area. VA loans are only available to veterans. Luckily, there are other options.
There are other options. Indiana offers Hoosier homebuyers a no money home purchase opportunity with the programs offered by the IHCDA. Also, there are many low money down home mortgage options.

The Quadwalls Real Estate Team has helped many people purchase a home using a down payment assistance program. We can help you, too. Please, contact us! We are here to help make homeownership a reality for you. We have experience navigating these systems and getting our buyers to the closing table.