Q: I’m 35 years old and still renting. I so desperately want to own a home, but my savings account isn’t so robust. My question is: How can I buy a home without a down payment?
— Julie, Baltimore, MD
A: Let me get this straight — you want to borrow hundreds of thousands of dollars without putting any skin in the game? Believe it or not, this question isn’t as crazy as it might sound to some, because it is possible. And I’ll tell you how.
If you’re a veteran or farmer, you’ll have the best access to a no-down-payment loan. And if you’re neither of the above, don’t stress — there are ways for you to secure a loan too. The easiest being to marry a veteran or a farmer. (Kidding.)
The most common way for a civilian to purchase a home without a down payment is to take out a second mortgage for the down payment itself. But there’s a huge caveat here: the interest rate for this down payment will be much higher than for your first mortgage. This means you’ll end up paying a lot more in accumulated interest. A lot more.
Alternatively, you can apply for a low-down-payment mortgage or a down-payment assistance program. An FHA loan, for example, requires only a 3.5% down payment. However, you’ll have to pay mortgage insurance every month that equals roughly 0.85% of the average yearly loan balance.
Veterans, on the other hand, have another option: the VA loan. Available from the U.S. Department of Veterans Affairs, the VA loan guarantees qualified veterans a loan without requiring any down payment — not a cent.
There are, however, one-time fees that must be paid when you close a VA loan. These fees can amount to 2% to 3% of the loan amount. Another benefit of the VA loan is that unlike with an FHA loan, you won’t have to pay mortgage insurance. If you are a veteran (or married to one), this could be your best bet.
For farmers, there are a host of loans one can get from the U.S. Department of Agriculture (USDA). The most popular is a Single Family Direct Home Loan, which is available for farmers who are purchasing manufactured homes (like a mobile home) and have an income that is 60% above the average median income for the area. Another option is the Single Family Housing Guaranteed Program, which you can learn more about on the USDA website.
Just because you don’t have 20% for a down payment, that doesn’t mean you can’t buy a home. It simply requires some resourcefulness and know-how, or willingness to pay more in the long run.
Good luck, Julie.
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