No Money Down
Not All Down-Payment Programs are Equal
Ways to Leap over the Down-Payment Hurdle
My husband and I are in the same situation as many. We can afford the house payments but not the down payment. I don't know too much about the rent-to-own option so any information about it would be appreciated. Would this be the best route or should we just wait until we save the down payment? I want our son to grow up in a house not an apartment. And some apartments cost the same as house payments. Why pay $800 in rent that could be going towards a house?
Renting with the option to purchase is a great way to obtain your first home and affords you the opportunity to get into a home without closing costs. It is also known as buying on contract if you know you are purchasing, but you just don't need any money up front other than perhaps realtor fees.
But be sure you have a contract and be sure you read it over completely at your leisure. Do not sign it until you have had your own attorney look the contract over.
We bought our first home on contract with nothing down. But we also started looking for our own mortgage as soon as we felt that we stood a good chance of being able to get it, and we had it within a year. We felt much more secure with a bank as our lender.
I'm a Realtor who works exclusively as a buyer's agent, and I run into people in Bobbi's situation frequently. There are many programs available now that will help you buy a home with no down payment.
Programs like Amerdream and Neighborhood Gold allow the seller to pay the down payment for the buyer. Under those programs, you ask the seller to absorb a 3% down payment. As a result, you'll probably need to offer 3% more than you would normally, just to be competitive with other offers. You might even be able to get the seller to pay your closing costs, if you are able to offer them a high enough purchase price.
Here are two things to consider when you go this route:
First, your Realtor should help you make sure your offer is within the market value for the area, considering the age, size and condition of the home. If the appraised value is less than the contract price, your loan will not be approved.
And, secondly, think about resale of that home in the future. If the price you pay for the house is at the high end of the market, it may take longer than normal for the value of your home to increase enough to cover your purchase price plus normal closing costs and commissions paid by a seller. This isn't normally a problem if you buy in an area with rising home values, and you are willing and able to remain in the house and take care of it while you're there. But, if you may need to sell in the next few years, you could find yourself having to pay extra money to sell your home, instead of making a profit.
All that said, many people are finding these programs a real bargain because they've been able to move into their own home while interest rates are at historical lows, and they haven't had to wait until they could save up for a down payment. Call some Realtors in your area. Interview them to see if they are knowledgeable about these types of programs, and whether they are willing and able to help you. Choose one to represent you. Then, have fun shopping and planning to move into your new home!
Marilyn H. from Mississippi
If one is willing to check into it, a home can be purchased through the USDA Home Program with no down payment. There are certain requirements that go along with the loan, such as living in a rural area, but this can be just outside of large metropolitan areas. This program was designed to get people to move out the city in order to populate the rural areas. There is no down payment, lowest interest rates to be had, and in certain situations, your house payment can be subsidized. Had I not found this type of loan 15 years ago, I too would still be living in an apartment.
There are offices throughout the United States. These can be found along with information concerning the loan at the USDA Rural Homes website at www.rurdev.usda.gov/rhs/. All one has to do is navigate the website. You can look at income levels that will help to determine if you qualify for this loan. I took a loan out on a house that had been repossessed by them and needed repairs. Because of this, they gave me two loans (one for repairs and one on the house itself) that were then combined into one payment. I have a three bedroom, one bath home with detached garage.
This loan also has many clauses in it that helped me out when I got into financial problems. When I became sick in 1996, they lowered my payment. Payments are based on income, with certain deductions allowed. My payment became $96 per month. At present, my payment stands at $205 monthly as I am now on disability. Had it not been for this clause, I would have lost my home. Plus one can borrow money from them once established for using in renovations or repairs of the home with interest rates and terms that no bank or financial institution could even begin to match.
Many cities and towns have non-profit organizations that assist first time homebuyers with down payment and closing costs. To find one in your area, look on the Internet for Home Ownership Counseling Centers or Neighborhood Housing Services. Many banks can also refer you to programs that offer down payment assistance.
In our area and many other areas, both the city and the county have Homebuyer Assistance Programs. They give you a grant of $5000 to $7500 toward the down payment on a home. The only catch is they require you to live in the home for either 5 or 10 years. If you move out prior to that time, then you have to pay it back as an interest free loan. But since the house will go up in value, if you move out early, you can pay it off with the equity in the home.
HUD sponsors the program and the purpose of the program is to allow renters to buy a home. Call your local city's community development office and see if they have a program like this in your area.
Also do a search on the Internet for Homebuyer Assistance Programs or Down Payment Assistance Program. This program made the difference of us being able to afford to buy a house in a really good neighborhood or a not so good neighborhood.
And once you buy the home, always make extra principle payments, even an extra payment of $20 to $50 per month will cut many years and thousands of dollars in interest off your loan
There are so many options and programs available that having no money for a down payment should not create problems for you. Even borrowers with troubled credit history can find 100% financing. If your rate seems a little high, ask your loan officer about doing a pre-payment penalty or an adjustable rate mortgage (aka ARM). I do a lot of 100% financing and have found that most first time homebuyers are payment sensitive. By doing a pre-payment penalty and/or an ARM, your payment is much lower. Please make sure you ask the details of the prepayment penalty. For example, some pre-payment penalties will allow you to sell your house to someone other than a close family member and the penalty is waived. However, if you win the lottery or refinance and pay the loan off before the prepayment term is expired, you may have to pay a hefty penalty. Also, ask your loan officer and realtor about doing a FHA loan, "rolling in" 3% of your closing costs and using down payment assistance, if necessary. All of these things should keep you from taking much, if anything, to the closing table.
Sr. Loan Officer
I'm a Realtor in Baytown, TX and I frequently work with first-time homebuyers who are in the same situation. A good Realtor can be your best tool if you are ready to own a home, but need some help.
If a buyer has reasonably good credit and can get a loan, but doesn't have the down payment and closing costs saved up, it may be possible for the down payment and at least some of the closing costs to be rolled into the purchase price of the house. The only caveat is that the seller must agree to this type of transaction, and the house to be purchased must appraise for the total amount.
There are also a number of homebuyer assistance programs that can provide down payment and closing cost assistance for qualified buyers. Interested but don't know where to start? Contact an experienced local Realtor, preferably someone who has lots of experience working with first-time homebuyers. And don't be worried about the real estate agent's fee. Most of the time in my market, the seller pays the real estate agent, even if the agent is working for the Buyer.
Check your local non-profits. I qualified for the local Mennonite Housing program for no down payment. The program is income based. I do not have to repay the loan if I live in the home for 5 years and perform 100 hours of community service work or work on my own home within the first year. This program also has many other programs available to persons of any religious denomination. I live in KS.
We bought our home on a land contract, which is very common in this region. I was familiar with the technical definition but not the practical realities, which we learned the hard way.
First, consider why the owner is selling it that way instead of through a regular mortgage. Some folks are being kind to buyers without a large down payment and others are using it because they can't sell through a regular mortgage, which was what we eventually found out about our house. There was a boundary discrepancy, which could have caused us to lose an entire room of our house some day if the neighbor or her beneficiaries ever wished to push the issue, which kept any honest real estate agent from being able to list the house. Once the owner found out that we were aware of the problem, she took the proper steps to rectify it, which is what she should have done to begin with.
Also, the owner retained the right to inspect the house at any time, which we didn't mind, but she also felt that she had the right to approve any cosmetic changes we'd made! She then attempted to "foreclose" on us on the basis of violating the contract by putting up wallpaper, etc. The contract actually stated that she had to be notified of any major renovations or changes to the property. Ultimately, she did not succeed, of course, but it was a lot of headaches and a bit of money wasted in defending ourselves against this.
The bottom line is make sure that you have your own lawyer who reviews any contracts before you enter the agreement to be sure that all parties are clear on all conditions. I certainly understand our seller wanting to protect her property from casual buyers who might damage the property and then default, leaving her holding the bag, but that was not how she attempted to use those clauses of the contract. We were serious buyers, not renters, and all changes we'd made were improvements that increased the value of the property. Plus, we'd actually been defrauded as far as the boundary discrepancy was concerned, which is why she attempted to get rid of us.
I'm a mortgage loan officer and there are ways to secure a down payment:
Ask the seller for a concession. This is usually around 6% and it can be placed at the "front" or "back" of the loan
Perhaps a relative can "gift" the down payment. It doesn't matter to the lender who gives it to you.
Check the face value on your whole life insurance policy and borrow against it.
If you or your husband is a veteran, go through VA. There will be no down payment, although it takes a little longer to process than conventional lending.
Be sure to select a home that is not too expensive. Go to a lender for a free consult to see how much "house" you qualify for before you select.
Check the point spread that the broker is charging to make sure it is equitable and you save money. Be on guard for "predatory lenders."
It also helps to have two months "cash reserves." Be sure to find out if the lender wants "seasoned" money. Has it been in the account for awhile?
Buy a "fixer-upper." Sometimes the seller will waive the down payment in place of "sweat equity."
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