Why keep spending money on rent month after month after month, putting money in your landlord’s pocket instead of building equity in your own home?
Far too often in today’s real estate market, with homes prices going higher by the day, people are renting their home when they’d really like to buy it. That’s because they can’t put together the money needed for a down payment.
The rule of thumb is that a home buyer should put 20% down. But if the average sales price of a house is running $300,000 that’s a whopping down payment of $60,000. Who has that much cash lying around?
Fortunately there are ways to buy a home with no down payment – you just have to know where to look and be a little creative.
Here are five popular ways that buyers with little or no cash can buy their own home with no money down:
1. VA Loan
For qualified veterans, people currently in the armed forces, or even members of the National Guard or Reserves, borrowers may be able to qualify for a 100% financing VA Loan. The Department of Veterans Affairs guarantees these loans that are offered by private lenders.
Even the funding fee – which is around 2% of the purchase price – can be rolled into the loan itself.
2. Navy Federal Loan
Members of the Navy Federal Credit Union who are buying a home to live in themselves may be able to qualify for a no-money-down loan. Access to this program is restricted to people who work for the U.S. Department of Defense, members of the armed services, some civilian employees, and family members.
3. USDA Home Loan
These no-down-payment loans from the U.S. Department of Agriculture are originated by private lenders and carry a small 1% guarantee fee that can be combined into the loan amount. There are restrictions on income and USDA home loans are meant mainly for first-time home buyers.
Believe it or not, these loans are so popular that often times the USDA runs out of funding for them before the year is up!
4. Lease Purchase Loan
Lease-to-purchase loans are attractive to buyers who aren’t members of the armed services and who don’t qualify for a USDA home loan. Also know as rent-to-own loans, this type of creative financing takes part of the monthly payment and applies it toward the purchase price of the house.
For example, if the monthly payment is $2,000 the renter and owner may agree that $500 of the total monthly payment is applied toward the purchase of the house. Once the renter has enough equity built up they can apply for a conventional down-payment loan and go from being a renter to being the proud owner of their home.
5. Seller Financing
This is a perfect option for sellers who own their home free and clear and would rather have monthly income than receive a lump-sum payment for their house. With this type of loan the seller acts as the lender with monthly payments from the borrower going through an escrow account.
One of the nice things about seller financing for a borrower is that often times the seller will be less stringent than a formal lender would be.
Other possible options include no-down-payment loans from credit unions, and mortgage brokers who know about special no-money-down programs in your area. The bottom line is that it pays to shop around and to be creative when looking for a home to buy with no money down.
With these five options to buy a home with no money down it’s easy to become part of the American Dream!