Thanks to mortgages, many Americans can solve their housing problem. Almost always banks requiring a down payment to protect themselves from possible risks. Also, a down payment guarantees that the bank can be compensated by selling the property if the borrower becomes bankrupt.
So, is mortgages without a down payment even real?
They are rare but possible. And such offers aren’t available to everyone. So what should you do if you really want to buy a house but do not have the initial capital? Which mortgage program should you look for?
One more time, why do I need a down payment?
Frankly speaking, buying a house without a down payment can be kind of risky. With, let’s call it ‘classic’ mortgage, a down payment is 20% of the house value.
If you have this money – they stand as a guarantee that you were able to save money for the future, so more likely you will pay a monthly rate and have a good credit history.
Otherwise, the lender will think that you have poor payment discipline since you couldn’t save money for the down payment.
Moreover, the bank will think twice before giving a loan to such a client, because due to their policy, it can be a high risk of default.
Plus, all along with the unstable real estate prices, the property may not always be sold at the desired price. In crisis times, even a whole 20% of the down payment may not be enough to cover a borrower’s debt who can no longer pay the loan.
Let’s jump to the minuses of this mortgage type:
an increased interest rate compared to traditional ones.
a shorter loan term, which means that the monthly payment will be higher.
stricter requirements for the borrower and the property.
So, what to do if there is no money for a down payment?
Well, the basic option is just to save up and start a mortgage loan agreement. But if you have no time – we have an option.
There are ways to arrange a mortgage without a down payment.
Consumer Loan
It goes with no fixed purpose. The money you’ll receive with this type of loan is used to pay the first part, allowing you to arrange a mortgage on regular terms without an increased rate.
Remember that often the interest rate on conventional loans is much higher than the mortgage rate. This means that you’ll have to pay more in total than you’d pay without taking this loan.
In addition, you’ll have to maintain two loans at once, which will significantly increase your debt load. It also may lead to a mortgage denial if the bank discovers that the borrower won’t be able to make payments on both loans at the same time.
Money Borrowed
If you want to avoid the necessity of paying the second loan and not affect your credit history, you can just borrow the money. Not from the loan company, but from relatives or friends. In this case, you won’t have to pay an interest rate, so the financial responsibility compared to a consumer loan will be slightly less.
But be aware applying to microfinance institutions – you will be offered high rates on microcredits so the overpayment, in the end, will be much higher than the benefit.
Military mortgages
The VA loans are no-money-down programs available to members of the U.S. military and surviving spouses. VA loan qualifications are straightforward, check the U.S. Department of Veterans Affairs list.
Concessional Mortgage
Concessional mortgages are another form of government assistance that allows you to buy a home without having enough money saved. The Home Ready or Home Possible program offers mortgages with just 3% down payments. The Fannie Mae Home Ready and Freddie Mac Home Possible programs are extremely flexible on sources of income.
Rural Housing Loan
USDA loans for low-income buyers in rural and suburban areas. The U.S. Department of Agriculture (USDA) loan allows you to buy a home with zero down payment. It’s available for properties in areas that are rural, although suburban areas are among them. To see if the location in which you have chosen home is in an area with an opportunity for this type of mortgage, check USDA’s property eligibility map.
It’s realistic to qualify for a mortgage without a down payment; choose the program that fits your needs and collect the necessary documentation.
In the end, a no-down-payment mortgage may be less advantageous than a standard mortgage with a large down payment. So, before you sign a loan agreement and take out a mortgage, you should measure your options and review the programs available to you.
LBC Mortgage offers different types of mortgage programs with flexible terms and low-interest rates. You can find a suitable program by calling us at any time!
