So you have good credit but just can’t seem to raise the cash required for the down payment. That’s ok!
Here are three ways you can buy a home with no money down. The first two have been around for many years and you might not qualify, but the third one is new and will work for a lot of people.
VA Loan – In order to qualify for a VA Loan, you (or your spouse) must meet the minimum service requirements established by the Department of Veterans Affairs (aka The VA). You must have a valid COE (Certificate of Eligibility, issued by the VA), and you must also meet or exceed the lender’s income and credit requirements.
The last time I checked, the service requirements you need include either 90 consecutive days of active service during wartime, or 181 days of active service during peacetime, or 6 years of service in the Reserves or National Guard, or finally, if you are a spouse of a service member who died in the line of duty or as a result of a service-related disability.
USDA Home Loan – Unlike the VA Loan, this loan’s restrictions do not center around the borrower as much as it does the property being purchased. The loan provides for 100% financing for properties that are located in rural areas.
The term “rural” is defined by the USDA and they have published a map that shows which areas are rural (and which ones are not). Believe it or not, Tallahassee has several areas in and around it that qualify as rural, so simply ask your real estate agent to find you all the homes for sale in your price range that are located in the USDA rural areas.
The last time I checked, this highly desirable loan allows for credit scores as low as 620, no cap on the maximum purchase price, the buyer can finance the closing costs, the seller can pay up to 6% of the buyer’s closing costs, the monthly mortgage insurance is relatively low, and the loan can be used to buy new construction, foreclosures, and resale homes, so long as they fall within a designated rural area.Conventional NO MI 101 – Mitch Wright, of Bay Capital Mortgage, just told me about a great new loan program that was designed for cash strapped folks with good or better credit than your standard FHA buyer. The minimum credit score is 660 to be eligible and the program does require an AUS (AUTOMATED UNDERWRITING SYSTEM) DU approval.
The neat thing about this loan program is that it applies some common sense that has long been missing from home mortgage loans. Typically, you either get approved or disapproved when you apply for a loan. I’ve been wondering when somebody with common sense would come out with a stepped program where highly qualified buyers get the lowest rate, and then less qualified borrowers are offered loans with escalating rates. This appears to be it!
As you might imagine, the higher a borrower’s credit score, the better the offer will be from the lender. I asked Mitch to provide some examples based upon credit scores ranging from great to barely acceptable:
- 760 or greater scores rate today is 4.625% no points
- 740-759 credit scores rate today is 4.750% no points
- 720-739 credit scores rate today is 4.875% no points
- 700-719 credit scores rate today is 5.250% no points
- 680-699 credit scores rate today is 4.875% charging 2 points
- 660-679 credit scores rate today is 5.500% charging 2 points
With this loan product, the home seller can contribute 3% of the sales price towards the buyer’s closing costs and the loan allows for an additional 1% of the closing costs to be financed. That means this can be a 101% LTV loan for buyers!
The Conventional NO MI 101 Loan was designed for first-time homebuyers (anybody not on a deed to a property within the last three years, so you could have owned a home prior and still be a first-time homebuyer), but it is available to others with more restrictive income requirements.
- First-Time Homebuyers – The loan allows for first-time homeowners who earn up to 140% of the medium income (medium income is $69,100, so the loan is for families that earn less than $96,740).
- Non-First-Time Homebuyers – Can qualify for this home loan, but it is limited to borrowers who earn up to 80% of the medium income, which means less than $55,280.
Ultimately, this program should be used by somebody wanting to buy their first home that is worth less than $300K with no money down, or by anybody wanting to buy a home that is worth less than $150K with no money down.
This loan program has the added benefit of requiring “NO MI” in the loan. You can always put money down as well if you wish to enhance terms.
If you want to talk with Mitch about any of these three loan products, just drop me a note and I’ll make sure he contacts you right away.