Popular belief has most people thinking they need a 20 percent down payment, so they avoid even looking at homes. But what if you knew you could buy a home with no down payment or a low down payment (3%)?
It’s a whole new ball game and opens a lot more doors for borrowers of all income levels. Fortunately, that’s the case – two popular loan programs, USDA and VA loans offer no down payment loans for homebuyers.
For those who don’t fall into the eligibility guidelines for these programs, there are plenty of low down payment options which we’ll cover below too.
USDA Loans – A No Down Payment Option
USDA loans are rural loans for low to moderate-income families. If you buy a home in a ‘rural’ area as defined by the USDA, and you meet the eligibility requirements, you’re well on your way to securing a no down payment loan in Louisiana.
To be eligible, you must:
- Have total household income below 115% of the average for the area
- Prove you’ll live in the home as your primary residence
- Not be eligible for any other financing options
If you’re eligible, qualifying for a USDA loan is easy:
- Minimum 640 credit score
- Maximum 41% total debt ratio (your total debts including the new mortgage shouldn’t exceed 41% of your income before taxes)
- Buy a home in an eligible area
- Have stable income and employment for the last 2 years
USDA loans have low mortgage insurance rates and offer competitive interest rates. USDA borrowers pay 1% of the loan amount in upfront mortgage insurance and 0.85% of the outstanding principal balance annually, broken down into 12 monthly payments.
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VA Loans – A No Down Payment Option for Veterans
If you’re a veteran of the military or are currently serving, you may be eligible for a VA loan, which is also a no down payment loan.
To be eligible, you must:
- Serve at least 90 days during wartime or 181 days during peacetime
- Serve at least 6 years in the Reserves or National Guard
- If discharged, have an honorable discharge
- Be the surviving spouse of a veteran who died on duty or because of injuries/illnesses from his/her time on duty
If you’re eligible, VA loans have simple qualifying factors:
- Minimum 620 credit score
- Maximum 43% Total debt ratio (your total debts including the new mortgage shouldn’t exceed 43% of your income before taxes)
- Have stable income and employment for the last 2 years
- Provide your Certificate of Eligibility from the VA (the lender can obtain this for you if you don’t have it)
VA loans charge an upfront funding fee of 2.3% of the loan amount, but they don’t charge annual mortgage insurance. You may wrap the 2.3% fund into your loan if there’s room in the value and you don’t have to worry about higher monthly payments with mortgage insurance.
🇺🇸 READ MORE: VA LOANS: The Best Loan Option for Veterans
Low Down Payment Options
If you aren’t eligible for either of the no-down payment options above, there are several low-down payment options that require as little as 3 – 3.5% down on a home.
FHA Loans
Most borrowers who don’t qualify for a conventional loan turn to FHA loans. This is another government-backed loan with flexible underwriting guidelines and only requires a 3.5% down payment.
If your credit score is good enough (usually 580+), you can even use 100% gift funds for your down payment.
There aren’t eligibility requirements for an FHA loan, but to qualify, you must:
- Have a 580+ credit score
- Have a max 43% total debt ratio (your total debts including the new mortgage shouldn’t exceed 43% of your income before taxes)
- Have stable income and employment for the last 2 years
- Prove that you’ll live in the home as your primary residence
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Fannie Mae HomeReady Loans
Fannie Mae created a program for high credit borrowers who don’t have a large down payment but deserve a conventional loan. The HomeReady program offers competitive interest rates and just 3% down on the home.
The HomeReady program is open to borrowers with an annual income of $46,720 or less with great credit. To qualify you must:
- Have at least a 620 credit score or higher (scores over 680 get better pricing)
- Have a 3% down payment
- Have stable income and employment for the last 2 years
- Take a homeownership education course
The HomeReady program offers mortgage insurance lower than a standard conventional loan with only 25% coverage required, which saves the average borrower $70 – $80 a month.
Freddie Mac HomePossible Loans
Freddie Mac has its version of a low-income, good credit borrower loan too. The HomePossible program offers flexible down payment options for eligible borrowers including funds from family, employers, secondary financing, and even sweat equity.
The HomePossible program is open to borrowers who make 80% or less of the area’s median income. To qualify you must:
- Have at least a 620 credit score
- Have a 3% down payment or alternative as discussed above
- Have stable income and employment for the last 2 years
- Take a homeownership education course
Don’t let the down payment hinder owning a home. Today there are plenty of programs to help you get into a home with no down payment or a low down payment.
While it helps to have a great credit score, even low credit score borrowers may qualify for programs like the FHA loan.
If you’re thinking of buying a home, focus on your credit score and don’t let down payment requirements get in your way.
Together, we’ll find you an affordable loan program, doesn’t require a large down payment, and saves you money on mortgage insurance, allowing you to enjoy homeownership earlier than you thought possible.
