Home buying isn’t easy. There’s a lot of work involved. Buyers have to research properties, neighborhoods, and local points of interest. Owning a home is a serious financial and time investment. A house is a place where most people spend the majority of their waking hours for many years or decades at a time, so it’s a decision that should be taken lightly.
Many people finance their home purchases through a mortgage loan. They usually pay a down payment and finance the remainder of the balance by making monthly loan payments. Some buyers opt to pay for their house without making a down payment. There are various reasons why buyers decide to do this.
Buying a house in Texas can take time. Even if you have a motivated seller, the entire process might not be finalized until several weeks or months have passed. There are certain steps that need to be taken and different people who become involved in the process. You may also encounter unexpected delays or problems. You should still be able to buy a house in most instances. Patience, persistence and a solid plan of action are essential for success.
Here are some of the most common ways that people buy a home without a down payment:
1. VA loans.
VA loans are backed by the United States Department of Veteran Affairs. They don’t require a down payment. This type of loan is available to active and veteran military members and their spouses.
A credit score of 580 or above is usually needed to obtain a VA home loan. They allow lenders to avoid paying for mortgage insurance by paying a one-time fee that’s equal to 2.3 percent of the loan value as a funding fee. The funding fee increases to 3.6 percent for each VA loan that follows.
To qualify for a VA mortgage loan, a person must meet one or more of these criteria:
- They are a spouse of a military member who passed away due to a service-related disability or in the line of duty.
- The person was discharged from the military because of a disability that was obtained during their service.
- The applicant must have served a minimum of 181 consecutive days of active service in peacetime.
- The person has served at least 90 consecutive days of active service during times of war.
- The applicant has served either a minimum of 90 days under Title 32 orders or has served more than six years in the Reserves or National Guard. At least 30 of those service days must be consecutive.
2. USDA loans.
USDA loans are supported by the U.S. Department of Agriculture’s Rural Development program. These loans are intended for homeownership and development in suburban and rural portions of the nation.
USDA loans are available for no money down. Many USDA loans generally have fees that are much less than many other kinds of traditional mortgage loans.
The home that’s financed with a USDA loan must be a single-family unit. It cannot be a farm that is actively used as a source of income. The house must also be your primary residence.
Applicants need a credit score of 640 or higher to qualify for a USDA mortgage loan. Their debt to income ratio should be below 45 percent. The combined gross income of the individual or family applying for a USDA loan can’t be more than 115 percent of the median income in the county where the house is located.
3. Paying with cash.
You can also pay for the property with cash. This is something that should only be done if you can afford to do so. It may take several months or years to accomplish this goal, but it prevents the need for having a down payment or mortgage loan.
Offering to pay for a home with cash doesn’t necessarily guarantee that you will be able to buy the house that you want. However, it can make you stand out in a crowded field. Sellers may be willing to give your offer more consideration over those made by other interested parties who haven’t secured their financing.
There are advantages and disadvantages to purchasing a home without making a down payment:
Advantages:
1. It can speed up the home sale. You may spend less time on the transaction once your financing has been obtained. Sellers will know that you’re serious and put your offer at the front of their list.
2. You’ll have more disposable income. Not having to make a down payment means that you’ll have more money for other things. You can save for renovations or upgrades to the house or you could buy other things that you’ve had your eye on.
Disadvantages:
1. You won’t have equity built up in the home. One reason why many people make a down payment on a house is because that starts to create equity in the property. A lack of equity may prevent you from being able to take out a home equity line of credit or home equity loan later on.
2. You may be paying your loan down for a longer period of time. Another drawback to skipping the down payment is that you will probably have a larger loan balance. It could take more time to repay the loan than anticipated. You’ll also be paying more money in interest to your lender in most cases.
Conclusion
Take some time to weigh the pros and cons of not having a down payment carefully. You should also review your current income and expenses to make sure that you can afford the home you want at this time. If you can’t right now, it’s okay to wait a while. Whatever you decide, just ensure that you can proceed with your plans without putting yourself deep in debt.
After your offer has been accepted, it won’t be long until the house you’ve had your eyes on will finally be yours. You’ll be given the keys to the house at closing and can move in whenever you want. You can look forward to making lasting memories with loved ones in a great place that you’ll be proud to call home.
Have Questions? Ask Rene!
