Buying a Home with Little or No Money Down

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As a new generation enters the housing market, they are caught off guard by how expensive purchasing a home is with high down payments, monthly payments, and costly closing costs. In fact, according to recent information from the Urban Institute, homeownership among millennials is 8% lower than both generation X and baby boomers. 

Thankfully, there are government-backed loans that can offset most if not all these costs. These loans come in the form of Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and Veterans Affairs (VA) Home Loans. Also, these loans are guaranteed by the United States Government, which in turn means more adaptable eligibility standards than conventional loans.

FHA Home Loans 

One of the most common and best loans for first-time buyers are FHA home loans. Partly because unlike most conventional loans that require a 20% down payment, FHA loans only require a 3.5% down payment. Moreover, other advantages of FHA loans are:

  • 15- to 30-year fixed-rate mortgages.
  • Low closing costs.
  • Low monthly costs.
  • A new buyer can assume the loan if the original buyer decides to sell the property. 

As a result, these loans are among the most widely used by first time home buyers. Especially those who do not want to or have the capacity to save the amount of money required for a conventional home loan. Also, these types of loans have very lenient eligibility requirements; these include:

  • FICO scores of 580 are eligible, with some lenders going as low as 500. However, lower credit scores might require a higher down payment.
  • If the borrower still cannot afford the down payment, they can get the money as a gift from a family member or take out a grant to cover it.
  • Chapter 7 bankruptcy recipients can still qualify if they are two years removed from the bankruptcy declaration.
  • Borrowers who have had a Chapter 13 bankruptcy can also qualify; however, they are required to have court approval and at least 12 months of making payments on time.

The United States Government guarantees FHA home loans, but they are administered by qualifying lenders. Currently, FedHome Loan Centers does not charge any fees to the borrower with their fees getting paid off by the investor.         

USDA Home Loans

Loans from the USDA, yes, the same USDA that inspects our food, are meant to reinvigorate and grow rural communities by improving accessibility to homes for people with lower incomes. Designed to help borrowers who make less than the median household income for their respective county, the USDA home loan also offers benefits like:

  • $0 down payments.
  • Competitive interest rates.
  • Flexible credit score requirements.
  • Low monthly mortgage insurance.

However, these loans are only applicable to rural communities, which are within an approved rural development area, and only applies to modest single-family homes.

VA Home Loans

VA loans are for veterans, active-duty service members, and the surviving spouses of deceased and MIA veterans. These loans are among the best home loans available with their many benefits. These benefits include:

  • $0 down payments.
  • Low Monthly Payments.
  • Low-interest rates.
  • No mortgage insurance premiums.
  • No prepayment penalties.
  • A loan can also cover the funding fee.

As of January 2020, VA home loans have virtually no loan limits for first-time borrowers. In turn, this will enable borrowers to purchase a home in a more expensive area. However, lenders can still put limits on the loans they are willing to give based on the borrower’s ability to make their monthly payments. At this time, VA Home Loan Centers have a loan limit of $5,000,000 for first time borrowers.  

Conclusion 

A report by the Washington Post points out that millennials own 4% of real estate in the U.S. which is dwarfed by the 32% that the baby boomer generation owned at the same age. However, this does not have to be the case, and government-guaranteed loans might be the answer to the growing concern of the increasing costs of homeownership.

Phil Georgiades is the CLS for FedHome Loan Centers, a brokerage specializing in first-time buyer home loans. He has been a practicing real estate professional for 22 years. If you’re interested in learning more about the programs available to you or in applying for a home loan, click here.

About Author

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LaDonna Dennis

LaDonna Dennis is the founder and creator of Mom Blog Society. She wears many hats. She is a Homemaker*Blogger*Crafter*Reader*Pinner*Friend*Animal Lover* Former writer of Frost Illustrated and, Cancer...SURVIVOR! LaDonna is happily married to the love of her life, the mother of 3 grown children and "Grams" to 3 grandchildren. She adores animals and has four furbabies: Makia ( a German Shepherd, whose mission in life is to be her attached to her hip) and Hachie, (an OCD Alaskan Malamute, and Akia (An Alaskan Malamute) who is just sweet as can be. And Sassy, a four-month-old German Shepherd who has quickly stolen her heart and become the most precious fur baby of all times. Aside from the humans in her life, LaDonna's fur babies are her world.

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