Do you have about $230,000 saved up somewhere?
If you’re anything like the vast majority of people, the answer is a big no. This also means you can’t afford to purchase a home in the United States, in cash. Average home costs have been on a steady rise, effectively locking out millions of people from being homeowners.
There’s good news, though. You can still become a homeowner. You just need to qualify for a mortgage. And part of mortgage qualification requirements is paying a deposit.
But what if you still want to buy a house with no money down? There’s still a way, but it’ll take some learning.
Continue reading for a detailed guide on buying a house with no down payment.
Is It Possible to Buy a House Without Putting Down a Deposit?
In a nutshell, yes.
However, to better understand this answer, you out to know how the mortgage process works.
When you want to buy a house via a mortgage, the first step is to get a pre-approval from your preferred lender. This means the lender is satisfied that you have met the minimum mortgage requirements, including having the right credit score and proof of income.
Now, mortgage lending is risky business. Some lenders will finance 100 percent of a home’s price, but this is typically offered to a select group of clients with excellent credit and solid income.
To reduce the lending risk, lenders require prospective buyers to pay a deposit, which is about 20 percent of the property’s price. This way, both the lender and the buyer have a stake in the home at purchase.
However, saving up the 20 percent deposit can still be a challenge, depending on the cost of the house you want to buy.
This where zero-down mortgages come in. If you can qualify for this mortgage, you won’t worry about putting any money down.
Who Qualifies for a Zero-Down Mortgage?
If everyone would qualify for zero-down mortgages, the matter of paying a deposit on a house wouldn’t exist.
There are two types of home loans that don’t require any deposit: USDA loan and VA loan.
USDA loans are backed by the United States Department of Agriculture. It’s meant to encourage people to move to rural and suburban areas.
To qualify, your household income cannot be significantly more than the median income in the county you’re looking to snap up home. You must also meet the set credit score and debt-to-income ratio requirements.
VA loans are backed by the U.S. Department of Veteran Affairs. It’s designed for qualifying service people or if deceased, their spouses. In addition, your credit score (FICO) must be no less than 640.
Clearly, these loans aren’t designed for the masses. If you have never served in the military or aren’t married to someone who has severed, there’s no chance you’ll get approved for a VA home loan.
Similarly, USDA loans aren’t exciting to most people. Unless you’re a rural living enthusiast, you might find no reason to move away from urban living.
Are There Private Mortgages That Don’t Require Down Payment on a House?
The vast majority of people looking to secure a mortgage are eyeing private mortgages (mortgages that aren’t backed by the government). As such, it’s understandable if you’re wondering whether there’s a private mortgage company that doesn’t require borrowers to make a down payment.
Well, there’s no straightforward answer, but it’s possible to get a private mortgage without paying a deposit on the house you’re looking to buy.
This will depend on the following factors:
Your Financial Relationship with the Lender
Lending is all about relationships. If you’ve built a solid credit history with a certain bank, for instance, it’s more likely to give you a low-interest loan. On the other hand, a bank you’ve never held an account with won’t be so quick to approve you for a low-interest loan.
Such relationships come in handy in the mortgage industry. There’s a chance your bank can approve you for a zero-down mortgage if you’ve been with them for several years, and especially if you meet the additional conditions below.
Excellent Credit Score
Your credit score tells lenders of your creditworthiness. A bad or poor score is indicative of a person who isn’t financially disciplined. An excellent score tells a lender that you’re a financially responsible person who can be trusted with credit.
On the FICO scale, anything above 800 is excellent credit.
As such, when your goal is to buy a house with no money down, it helps to work on your credit before approaching a lender. If it’s bad or poor, there are steps you can take to rebuild it.
A Solid Income
Taking out a mortgage is a big commitment. For the next 15 to 30 years, you’ll have the responsibility to make monthly payments to your lender. Any lender must be sure that you’ll have adequate income throughout this period; otherwise, you might default on the loan.
This is why proof of solid income can help you secure a zero-down mortgage.
You’ll have a good chance if you have a steady job that pays very well and offers great security.
If you’re a nurse, for example, your profession is considered safe by most lenders. It’s no wonder there are home loans targeting people in certain healthcare professions. Check out this home loan for nurses to learn more.
Generally though, if you’re a high-income person, lenders might consider you for a no deposit mortgage. You’ll, however, be required to purchase private mortgage insurance.
You Can Buy a House with No Money Down
Buying a house is a big step with huge financial requirements. Most lenders require mortgage borrowers to make a down payment, but it’s possible to get approved without paying any deposit.
Having read this guide on how to buy a house with no money down, you now know how to prepare yourself accordingly. Keep tabs on our blog for more information on home loans and homeownership.