How to Buy a House With No Money
Apr 2, 2023
Buying a house is a dream come true for many people, but the prospect of coming up with a down payment can seem daunting. However, it is possible to buy a house with little or no money down.
First it's important to understand the typical, out-of-pocket costs when you buy a house if you didn't have access to no-money down programs. Here's what you'd normally have to pay:
- Down payment: Typically 3-5% of the purchase price of the home
- Closing costs: Typically 1-3% of the purchase price of the home
Without leveraging down payment assistance programs, grants and a little creativity, most people need about 4-6% of the home price in cash (or savings) to buy a home. With an average home price in the US of $354,000 this means that you would ordinarily need a minimum of $14,160 to buy a house.
How to Buy a House with No Money
If you don't have $14K+ sitting in your bank account, you'll need to get creative and take advantage of government programs, lender credits and broker rebates. Below we explore some of the ways you can achieve the goal of homeownership with little or no out of pocket costs.
Zero Down Payment Mortgages
There are also some mortgage lenders that offer zero down payment mortgages in certain cities, specifically for Black/African American and Hispanic borrowers. For example, Bank of America offers a zero down program in Charlotte, Dallas, Detroit, Los Angeles and Miami. Their program is referred to as the "Community Affordable Loan Solution."
These loans often have stricter credit score requirements than other types of loans and may require you to pay for private mortgage insurance (PMI). However, they can be a good option for borrowers who don't have a lot of cash on hand for a down payment.
USDA Loan 100% Financing
If you live in a rural city or county, a great option is to look into USDA loans, which are designed for low-to-moderate income borrowers in rural areas. These loans do not require a downpayment and have more lenient credit score requirements than traditional loans. However, they are only available in designated areas.
Down Payment Assistance Programs
There are also many down payment assistance programs available to help homebuyers who don't have enough cash on hand for a down payment. These programs can vary depending on where you live, but they often offer grants or loans that can be used to cover all or part of the down payment and closing costs.
Neighborhood Assistance Corp. Program (NACA): NACA provides 100% financing loans, which means no down payment requirement or closing costs. There's also no minimum credit score. NACA also helps by providing low-income families workshops, which you must attend in order to qualify for 100% financing.
Real Estate Commission Refunds & Rebates
An often overlooked option is a commission credit from your real estate agent. Typically your Realtor will earn a 2.5 - 3% commission when you purchase a home. For a $350,000 home, that could be a commission of $10,500.
According to the US Department of Justice, rebates and commission credits are encouraged for promoting innovation and competition in the real estate industry. Two companies that offer refunds are Redfin ($2,400 on average) and SimpleShowing ($4,700 on average).1
VA Loan 100% Financing
If you are a veteran or active-duty service member, you may be eligible for a VA loan. This type of loan is backed by the Department of Veterans Affairs and allows borrowers to purchase a home with no down payment. Additionally, VA loans often have lower interest rates than other types of loans and do not require private mortgage insurance (PMI).
One option for buying a house with little money down is to take out an FHA loan. This type of loan is backed by the Federal Housing Administration and allows borrowers to put down as little as 3.5% of the purchase price. While this isn't technically "no money down," it's still a much lower requirement than the traditional 5% or 10% down payment. Additionally, FHA loans often have lower credit score requirements than other types of loans.
Buying a Home with No Money: Conclusion & Final Tips
Before applying to one or more programs, make sure you have a solid credit score. While some loans may have more lenient credit score requirements than others, having a good credit score can help you secure the best possible interest rate and loan terms.
In conclusion, buying a house with no money down is possible, but it requires research, preparation and creativity. Happy house hunting!