Potential homebuyers, especially first-time homebuyers, often wonder how much money they should save to purchase a home. There are a number of costs associated with the process, including a down payment and closing costs. Fortunately, 100% financing options are available for home loans that may allow you to purchase a home with no money down. If you are looking for a home loan with 100% financing, meaning a home loan that doesn’t require a down payment, we cover what you need to know.
What Is a 100% Financing Home Loan?
A 100% financing home loan is a type of mortgage loan that allows you to finance the entire purchase price of a home without making a down payment. With this type of loan, you don’t need to put any money down, which can make it easier for you to purchase a home if you do not have a large amount of savings or want to keep your savings for other purposes.
There are a few different types of 100% financing home loans available, including United States Department of Agriculture (USDA) loans and Veterans Affairs (VA) loans. These loans are backed by the government and are designed to help make homeownership more affordable and accessible to a wider range of people.
While a 100% financing home loan may appeal to some borrowers, this option may also come with higher interest rates and fees. Carefully consider your options and work with a reputable lender to ensure you are getting the fairest loan terms possible.
What Options Are Available for No Money Down Home Loans?
There are two government-backed home loan options that do not require a down payment — a USDA loan and a VA loan.
USDA Home Loan
This type of mortgage loan is guaranteed by the United States Department of Agriculture (USDA). A USDA home loan is designed to help low- to moderate-income borrowers in rural areas purchase a home or make home repairs. USDA loans typically offer favorable terms, including low-interest rates and zero down payment requirements. They are also available to borrowers with lower credit scores than other types of loans.
To qualify for a USDA loan, the property you plan to purchase or renovate may need to be located in a designated rural or suburban area as defined by the USDA. Additionally, you may need to meet certain income limits based on the area you are buying in and your household size. USDA loans are administered by approved lenders, and since the USDA guarantees these loans, lenders are protected from losses if you default on your loan.
VA Home Loan
This type of mortgage loan is guaranteed by the U.S. Department of Veterans Affairs (VA). A VA loan is designed to help current and former members of the U.S. military and their qualifying surviving spouses buy or refinance a home. VA loans typically offer favorable terms, such as no down payment requirement and no private mortgage insurance requirements, making them an attractive option for eligible borrowers.
To qualify for a VA loan, you may need to obtain a Certificate of Eligibility (COE) from the VA. The COE verifies that you meet the VA’s service requirements and are eligible for the loan. Like USDA loans, VA loans are administered by approved lenders, and the guarantee from the VA protects lenders from losses if you default on the loan.
Benefits of 100% Financing for Home Loans
Receiving 100% financing for home loans, also known as zero-down payment loans, can offer you several benefits. The following are some of the potential benefits:
- Increased flexibility: If you have saved up a down payment, you can use these funds for other expenses, such as home renovations, moving costs or emergency expenses.
- No down payment required: With 100% financing, you are not required to come up with a large down payment to purchase a home, which can be a significant financial burden.
- Faster path to homeownership: With 100% financing, you can achieve your dream of homeownership sooner.
- Affordable monthly payments: With no down payment, the loan amount is higher, but the monthly payments may still be manageable, especially with competitive interest rates.
100% financing may not be available for all types of home loans, and we recommend that you carefully consider the terms and conditions of any loan before making a decision. Additionally, you may be required to have strong credit scores and income to qualify for this type of loan.
How to Buy a House With No Money Down
Buying a house with no money down is possible, but it may require careful planning and a good understanding of your options. The following are some potential ways you can buy a house with no money down:
- Gift funds: If you have friends or family who are willing to help you purchase a home, they can give you a monetary gift that you can use as a down payment.
- Negotiate with the seller: In some cases, you may be able to negotiate with the seller to cover some or all of the down payment as part of the sale agreement.
- Apply for a VA loan or USDA loan: If you are a current or former member of the U.S. military or a qualifying surviving spouse, you may be eligible for a VA loan, which requires no down payment. If you are looking to buy a home in a rural area, you may be eligible for a USDA loan, which also requires no down payment.
- Down payment assistance programs: Some state and local governments offer down payment assistance programs to help you buy a home with little or no down payment if you are a low- to moderate-income earner.
Keep in mind that even if you are able to buy a house with no money down, you may still be responsible for other costs associated with the home purchase, such as closing costs and appraisal fees. Carefully consider all of your options and speak with a qualified mortgage professional to help you navigate the homebuying process.
What if I Don’t Qualify for 100% Financing for a Home Loan?
If you don’t qualify for 100% financing for a home loan, you may have some other options, such as applying for a conventional loan, applying for an FHA loan, applying for down payment assistance, applying for closing cost assistance or saving for a down payment.
Apply for a Conventional Loan
This type of mortgage loan is not guaranteed or insured by a government agency like the U.S. Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA). Conventional loans are backed instead by private lenders and investors. Typically, conventional loans come with stricter credit and income requirements than government-backed loans. They are often a good option for borrowers who have good credit scores and sufficient income to qualify for a loan.
Conventional loans can be conforming or nonconforming. Conforming loans are those that meet the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy and sell mortgage loans. Nonconforming loans, also known as jumbo loans, exceed the conforming loan limits set by Fannie Mae and Freddie Mac.
Conventional loans typically require a down payment of at least 3% of the purchase price, although some lenders may want a larger down payment depending on your credit score and other factors. You may also be required to pay private mortgage insurance (PMI) if you make a down payment of less than 20%. Conventional loans are a popular option for homebuyers who meet the credit and income requirements and want to avoid the mortgage insurance requirements of government-backed loans.
Apply for an FHA Loan
This type of mortgage loan is backed by the Federal Housing Administration (FHA), a government agency that belongs to the Department of Housing and Urban Development (HUD). An FHA loan is designed to help lower-income and first-time homebuyers who may have difficulty qualifying for a conventional mortgage loan. The FHA insures the loan, which means that if you default on the loan, the lender is protected against losses.
FHA loans typically have more lenient credit and income requirements than conventional loans, and they may require a lower down payment. The down payment for an FHA loan can be as low as 3.5% of the purchase price, although you may be required to make a down payment of at least 10% if your credit score is lower than 580.
One of the key benefits of an FHA loan is that it allows you to qualify for a loan with a lower credit score than would typically be required for a conventional loan. Additionally, FHA loans may offer lower interest rates and more flexible repayment terms than conventional loans. However, FHA loans may also require you to pay an upfront mortgage insurance premium (MIP), as well as an annual MIP that is added to the monthly mortgage payment. The MIP is used to fund the FHA loan program and protect lenders against losses.
Apply for Down Payment Assistance
Down payment assistance (DPA) is a type of financial assistance that is designed to help homebuyers cover the upfront costs associated with purchasing a home, specifically the down payment and closing costs. Down payment assistance programs are often administered by state and local housing agencies and nonprofit organizations.
Down payment assistance can take many forms, such as grants, loans or forgivable loans. The funds can be used to cover all or a portion of the down payment and closing costs, depending on the program’s guidelines and your qualifications. DPA programs are typically targeted at low-income homebuyers and first-time homebuyers who may struggle to save for a down payment. They can also be available to certain groups, such as first-time homebuyers, veterans or teachers.
The goal of down payment assistance is to make homeownership more accessible and affordable to a wider range of people. By reducing the upfront costs of buying a home, DPA programs can help you get into a home faster and with less financial strain. Down payment assistance programs may have specific requirements and qualifications that you may need to meet to be eligible. Carefully review the guidelines of any DPA program you are considering to ensure that you meet the qualifications and understand the terms of the assistance.
Apply for Closing Cost Assistance
Closing cost assistance is a type of financial assistance that can help you cover the closing costs associated with purchasing a home. Closing costs are expenses that are incurred during the homebuying process, such as lender fees, appraisal fees and title fees. Closing cost assistance programs are often administered by state and local housing agencies and nonprofit organizations. The assistance can be used to cover some or all of the closing costs.
Closing cost assistance is typically targeted at low- to moderate-income homebuyers who may struggle to cover the upfront costs of buying a home to make homeownership more accessible and affordable. Check if there are any closing cost assistance programs available in your area.
Save for a Down Payment
Trying to save for a down payment on a home can be a significant challenge, especially if you’re starting from scratch. However, there are several strategies that can help you save money more effectively and reach your down payment goal faster, such as:
- Reduce debt: Pay off high-interest debt, such as credit cards, as quickly as possible. This will free up more money for savings.
- Create a budget: Make a budget that takes into account your income and expenses and look for areas where you can cut back on spending. Consider reducing discretionary expenses like eating out, entertainment and subscriptions.
- Set a savings goal: Determine how much you need to save for a down payment and set a specific savings goal. This will help you track your progress and stay motivated.
- Consider a side hustle: Look for ways to earn extra income, such as freelancing, tutoring or selling items you no longer need. Put this extra income directly into your down payment savings account.
- Automate your savings: Set up automatic transfers from your checking account to a savings account each month. This will help you save money consistently and avoid the temptation to spend it elsewhere.
Saving for a down payment can take time and discipline, but if you don’t qualify for 100% financing, this can be an important step toward achieving homeownership.
Where to Start
Every homebuyer has different needs, which is why we offer so many different home loan options at Assurance Financial. We can help regardless of your life stage or homebuying goal, whether you are:
- First-time homebuyers.
- Vacation homebuyers.
- Experienced homebuyers.
- Self-employed homebuyers.
We can also assist if you’re downsizing your home, remodeling or building a home, or investing in real estate. Use a 100% financing mortgage calculator to determine how this mortgage may impact your finances.
Apply for a Loan Today With Assurance Financial
At Assurance Financial, we have been servicing the loan industry since 2001. We combine superior customer service with technology-focused solutions to bring you the most seamless homebuying experience possible. We handle the entire home loan process in-house, so you can rest assured that the process will go smoothly. If you are seeking 100% financing for a conventional loan or another type of home loan, apply for a loan with us at Assurance Financial today.