How to Buy Your First Home with NO Money Down, That’s Right $0 Down!
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Get Pre-Approved | FHA Variants | Government Loans | Credit Unions | New Physicians & Dentists
Most people renting recognize that home ownership is the way to go, if you can afford it (see our Rent vs Buy post if you’re not convinced), but simply don’t have the 5%, 10% or 20% to put down on a home. Add closing costs of a few thousand dollars and moving expenses and owning a home seems out of reach. Or is it? And whats the harm of renting one more year… it is only $1400 per month right? But it is not, it is $1400 x 12, or $16,800, real money.
Here’s the good news…. If you pay $1200-1500/month or more for rent and have decent/good credit, you can buy your first home for about the same cost as a new lease! How is this possible? With the return of the NO money down loan! Ok, so no down payment, but what about closing costs? A good buyer agent (I’d like to apply for the job if you don’t have one already!) will be able to, in most cases, negotiate a deal for the Seller to pay the vast majority of your closing costs.
You’ll still need $1,500 – $2,500 saved up for various expenses, the remaining closing costs and fees but that’s less than first and last months rent! You’ll also want to keep in mind that when you close on a home, the first mortgage payment isn’t due until the 2nd following month because rent is paid in advance, mortgage interest behind (arrears). For example, if you closed on January 3, 2015, your first payment wouldn’t be due until March 1! (Paying February interest)
Take a look at the various No Money Down loan types below. If you’d like to find out more about the loan, get pre-qualified or talk to a McDonald Group agent about your situation click on the Find Out More link at the end of each loan description, or give us a call at (704) 351 – 1519.<
First Time Home Buyers (FHA and variants)
Several of our favorite local lenders have variations on the FHA program that allow first time home buyers to get into a home for no money down. For example, the NC Grant program provides buyers with 5% for a down payment, but FHA only requires 3.5% down, so the extra 1.5% can be used to offset closing costs or to buy down your interest rate. For most first time home buyers looking for a no money down loan, this is the way to go (if you don’t fit into any of the other loan categories below this is definitely the way to go). Note that this isn’t the normal FHA program, but rather local lenders who have created their own twist on it to save you the down payment! Find out more about FHA no money down loans/lenders.
NCSECU and other Credit Unions
North Carolina is home to the 2nd largest state employee’s credit union in the country (NC SECU) and they have some great no money down options for their members. Count me as a fan! Any state or local employee can become a member, and sign their immediate family up as members too. The no money down loans available from NC SECU are some of the best around in my experience. The current program is a 5-Year ARM (adjustable rate mortgage) with no change to the rate for 5 years guaranteed, and sensible limits on possibly rising rates thereafter. If an adjustable rate (ARM) sounds scary, here are the positives: you save significantly on your payments AND you can refinance or move before the end of 5 years if needed (if you think the interest rate is going to jump up). If interest rates do not rise significantly then you may choose to do nothing. No PMI is required, reducing your monthly payments and there are no application or credit check fees. In addition to the NC SECU no money down loans, First Citizens Credit Union and Community One also offer no money down loans to their members in NC. Find out more about Credit Union Loans.
Government Guaranteed Loans: VA, USDA
VA loans are a great way for active military and veterans to buy a home for $0 down. In addition to no money down, VA loans do not require private mortgage insurance (PMI) which will reduce your monthly payments. You’ll need to have VA eligibility, decent credit to qualify, fall within the prescribed debt ratios and several other requirements to qualify for the loan but for most active military and veterans this is the loan of choice up to $417,000. Find out more about VA loans.
USDA loans are available in more rural areas (have to check to make sure the address qualifies) often right on the edge of suburbia. The USDA guarantees loans with no money down, provided you don’t make too much money, or have too many assets. ( you can’t have a 20% down payment sitting around you don’t want to use) It’s important to note that while the loan program rules are set by the government, you don’t have to be in the military or government to use this loan type. It is p[roperty specific, and in addition to area requirements, income and credit restrictions apply. Find out more about USDA loans.
New Physicians and Dentist Loans
These are great for new physicians or dentists (some also works for fellows or residents). While the details vary slightly from program to program, several lenders in Charlotte will provide no money down loans on homes up to $1,000,000 for qualifying physicians and dentists! How is that possible? These banks portfolio your loan instead of selling it to Fannie or Freddie. This means that they want you as a lifelong customer so they give you a good deal on your first mortgage. Interestingly, several will also provide 3% down payment loans on homes above $1M. Even cooler, if your student loans are in forbearance then they don’t count against your debt ratios! You will need excellent credit (min 720 FICO) and income reserves do apply. Find out more about new physician and dentist loans.
Survey Says? Due to low interest rates, the ability to make Sellers pay closing costs and the return of the NO money down loan, home ownership has never been easier to grasp. With interest rates set to rise in 2015, why wait? You’ll pay more and get less home.
Remember when looking at that lease to renew, you’re not agreeing to pay $1500/mo, you are agreeing to pay $1,500 x 12 months, or $18,000! That number, plus the rise in the interest rates and home prices is the opportunity cost of waiting another year before you buy.
***All the loan info in this post is accurate at the time of this writing but obviously loan packages change over time. Restrictions apply, and each lender has their own list of requirements. Click on one of the FIND OUT MORE links or contact Bobby McDonald at (704) 351-0987 for the most up to date no money down loan information and details.***