Not many lenders allow for 100% financing or no down payment. There are a few circumstances that do allow it.
- If you are or were a member of the military. (VA Loan)
- USDA Rural Loans
If you were a member of the military, you may qualify for 100% financing of your primary residence. The Veterans Administration (VA) provides a home loan guaranty benefit and other housing-related programs to help veterans buy, build, repair, retain, or adapt a home for their own occupancy. Because the VA guarantees a portion of the loan amount, lenders are able to offer more favorable terms to eligible veterans.
These VA loans are subject to strict criteria on loan limits, minimum property requirements (MPR), and a condo association must be VA approved. This is an attractive incentive for faithful service in the United States Military.
USDA Rural Development Loans
The USDA guarantees loans in certain rural areas. These loans do not require a down payment. These loans are only available in rural areas and are meant to support housing in these areas.
- 100% financing, no down payment is required. The loan amount may not exceed 100% of the appraised value, plus the guarantee fee may be included.
- Guarantee Fee applies: may be rolled into the loan amount.
- Flexible credit guidelines. Non-traditional credit histories may be accepted.
- Fixed 30 year interest rates apply. Lenders and applicants agree upon interest rate.
- Qualifying ratios are 29% for housing costs and 41% for total debt. Lenders may request an exception to exceed these ratios when strong compensating factors are identified.
- No maximum purchase price. Qualifying ratios and the applicant’s stable and dependable income will determine home affordability.
- Eligible property types include existing homes, new construction, modular homes, Planned Unit Developments (PUD’s), eligible condominiums and new manufactured homes.
- Eligible closing costs and lender fees may be included in the loan or paid by the applicant.
- Gift/Grant Funds/Mortgage Credit Certificates (MCC’s)/Seller Concessions are allowed.
- Eligible repairs and improvements may be included in the loan.
- Applicants apply with an approved lender of their choice.
- Not limited to first time home buyers.
Low Down Payment Options
Section 184 Loan
According to the HUD website:
The Section 184 Indian Home Loan Guarantee Program is a home mortgage specifically designed for American Indian and Alaska Native families, Alaska Villages, Tribes, or Tribally Designated Housing Entities. Section 184 loans can be used, both on and off native lands, for new construction, rehabilitation, purchase of an existing home, or refinance.
The Section 184 Loan allows for a low down payment of as little as 2.5%. It also has no monthly mortgage insurance, but instead charges an up front fee of 1.5% of the loan amount.
A list of currently approved lenders is available here.
The Federal Housing Authority (FHA) insures low down payment loans. This allows you to finance a home with as little as 3.5% down. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD. This program is called the 203(b) program. It is available for properties with 1-4 units.
Some conventional lenders will lend with as little as 5% down. These programs have private mortgage insurance (PMI) that will insure the lender for losses above the traditional lending limit of 80%. PMI adds an additional cost to borrowers.
Down Payment Sources
The down payment for most loans can come from a variety of sources.
- It can come as a gift from a family member or friend. This must truly be a gift and not a loan in the form of a gift.
- It can come from 401k and retirement plans. Check with the HR department at your employer to see if they allow you to make a loan to yourself from your 401k plan to apply towards a down payment. This can be a great option if saving for a down payment is tough.
- Your down payment can also come from savings. This takes discipline and practice. Here is a good article from the Washington Post with some helpful tips.
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