Being a homeowner has lots of perks – you get a nice tax deduction, you are building equity in your home, and hey – you can paint the walls whatever color suits your taste!
There’s quite a lot of data to be found about loans, interest rates, and insurance costs. And it’s pretty easy to find out what a home will cost in the area you’d like to purchase in. But there’s not a lot of information on how much money you will need to pay “out of pocket” in order to actually buy a house. Everyone’s circumstances are different and you may have thousands of dollars saved up – or maybe just a few hundred.
Typically, a borrower (that’s mortgage lingo for “person who applied for a loan”), will have to make a payment at closing which consists of a down payment and closing costs. There are instances where this amount can be zero – or very close to it! Let’s look at some cases where this would be true.
The U.S. Department of Veteran’s Affairs (VA) guarantees VA loans and are available for eligible veterans, service members and surviving spouses (provided they do not remarry). VA loans can provide 100% financing and will even allow the VA funding fee to be added to the loan amount. This takes care of the need for a down payment. Closing costs can be covered by seller credits, lender credits or realtor credits which can result in a closing where no money is needed on the buyer’s part. VA loans don’t have the need to pay mortgage insurance.
Another scenario where a buyer can escape the need for a down payment is a loan from the Federal Housing Administration, known as an FHA Plus loan. Most FHA loans require a down payment of 3.5%. With the FHA Plus loan, there is a first mortgage based on 96.5% of the sales price and a second mortgage of 3.5% to 5% of the sales price. Again, if third party credits are available to pay the closing costs, no money is needed at closing. Unlike the VA loans, FHA loan have both upfront mortgage insurance premiums as well as monthly mortgage insurance payments.
A third loan option that has no down payment is a USDA loan. USDA loans are designed for lower-income borrowers and there are geographical restrictions regarding the purchased properties. The home purchased must be a primary residence and in a rural area that with a general population limit of 20,000 or less.
Conventional, conforming loans of $417,000 or less can be obtained for as little as a 3% down payment. Keep in mind that with a loan that has a loan-to-value of 97%, the cost of mortgage insurance will be higher on both single premium mortgage insurance as well as with monthly mortgage insurance when compared to loans with a down payment of 5% or more.
With conventional loans, mortgage insurance will be needed with any single mortgage loans with less than a 20% down payment.
Every borrower has unique loan scenarios based on credit scores, cash available for down payments and closing costs, eligibility for various loan types, etc. As a loan officer, I take great pride in fully understanding the specific needs of borrowers to allow me to offer the best possible mortgage loan solution. Please contact me for further information or assistance!
NMLS # 838973
Keith Harris
Senior Loan Officer
Intercoastal Mortgage Company
Direct: (703) 259-0788
NMLS ID # 838973