No Down Payment? No Worries.


If you're like many home buyers, a down payment is the biggest obstacle between you and homeownership. Finding a lender with low- or no- down payment mortgages could be the difference between buying a home now or having to wait months or years.





VA loans, backed by the Department of Veterans Affairs, and USDA loans, guaranteed by the U.S. Department of Agriculture, require no down payment to qualified buyers.


FHA loans, insured by the Federal Housing Administration, require down payments as low as 3.5%. And even today's conventional loans allow down payments as low as 3%.



Putting less money down could mean buying a home sooner. But lower down payments have disadvantages, too, such as higher mortgage payments, so it's important to understand and weigh your options before you decide to purchase a home.




Pros and cons of low- and no-down-payment home loans


The pros: You don't have to wait until you have enough money saved for a large down payment; which means you can become a homeowner and start building equity sooner.


The cons: Low- and no-down payment mortgages include extra expenses.

* Conventional loans with down payments under 20% (along with FHA/USDA loans) require buyers to pay for mortgage insurance, which protects the lender in case of defaults. VA loans have a one-time VA funding fee.


A low- or zero-down-payment mortgage means you will start your homeownership journey with little to no equity in the home. If your home declines in value, you can end up owing more than the property is worth. Your interest rate and monthly mortgage payment could also be higher with a low-down-payment mortgage.


>> Check out First-Time Home Buyer Programs in Indiana




Now, the not-so-fun Credit Score Requirements! To qualify for a low- or no-down payment mortgage, you will need to meet certain credit score requirements.





FHA loans: To qualify for a 3.5% payment on an FHA loan, you’ll need at least a 580 credit score. With a score between 500 and 579, you’ll need a 10% down payment.


Conventional loans: On low-down-payment conventional loans, a 620 score or better is generally required. Some conventional loans, such as HomeReady and Home Possible are geared to low-income borrowers.


VA loans: VA loans cater to borrowers with military connections. The required credit score for VA loans varies by lender. Lenders often require a 620 FICO score and can set other qualifications for VA loans, so it’s always a good idea to shop with more than one lender.


USDA loans: USDA loans are for buyers in rural and some suburban areas. Applicants with credit scores of 640 and higher can qualify for streamlined processing. Those with lower scores have to go through a more rigorous underwriting process. Applicants with no credit score or limited credit histories can qualify for USDA loans with nontraditional credit information, such as rental and utility payments.


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Information Retrieved from: www.nerdwallet.com

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