Basic facts about investment property loans with low down payment
For most home buyers, the mortgage down payment is usually the biggest obstacle between them and homeownership. But finding a lender who offers loans with low or no down payment loans for house could be the difference between waiting for months or even years to be a homeowner or buying that dream home right now. Several methods can be applied by homebuyers to get mortgages with low or zero down payment, a move that comes with numerous obvious advantages. However, there are a couple of drawbacks associated with home loans with no money down, and it is essential that you understand the available options before buying a home.
Advantages and disadvantages of low down payment home loans
Pros of home loans with low down payment
- Allows different buyers to acquire a home – Aside from getting the mortgage and subsequently make money on it, one of the key reasons why lenders grant no down home loans is because most buyers lack boatloads of savings. Numerous prospective buyers out there have great credit and an excellent job history, yet they lack a ton of money in savings to facilitate substantial down payments.
One of the most crucial benefits home loans with no money down is that it allows more potential home buyers to own a home, allowing more sellers to profit from the sale of their property. Depending on the mortgage type, it may additionally be possible to require a little or no down payment for sellers to earn seller concessions. A seller concession allows the buyer to receive funding from the seller that will be placed towards the down payment as well as closing expenses.
- The buyer’s savings account is not drained – Another key benefit of acquiring small housing loans is that it prevents buyers from draining their savings account. Among the most crucial tips for home buyers who are doing it for the first time is that both buying and owning a home are associated with several costs.
Conventional loans with low down payments offer the ability to still have some money left even after paying the down payment as well as the closing payments. This amount comes in handy in case of emergency or need for repair in the home. For instance, if you’re purchasing a home with a small down payment and the house needs a furnace replacement, you will still have some money in your savings account to cater for just that.
Cons of placing a small or no down payment
- The method lacks immediate equity – Owning a home may be considered a reliable investment opportunity since it can build equity. Choosing investment loans with low down payment is risky as it may lead to lack of equity. It is important to note that the bigger a down payment, the more substantial the instant equity amount and vice versa. Furthermore, in case you sell your home before having enough equity, you may have to go for a short sale. This process may end up to be long, tedious, and ultimately unsuccessful.
- Mortgage insurance – Homebuyers who use small or no down payment loans are required specific amounts of money paid monthly or upfront
Types of mortgage loans with no down payment
IF you are looking for ways to buy a home without paying a down payment, then you are fortunate since you have several types of loans to choose from. Below are some of the currently available types of home loans with no down payment for buyers interested in no down payment home loans.
- VA Loans for veterans
If you have served in the National Guard or military, then you probably qualify for VA mortgage. Your lender may help you get your Certificate of Eligibility (COE) if you don’t have one. Within certain limitations in the purchase price, this mortgage guarantees lenders up to 25 percent of their homes purchase price. Then for the lender, the VA mortgage loan is typically 75 percent. Note that you have to pay a funding fee for the guarantee, but it will subsequently be part of your loan amount.
- USDA Rural Housing Loans
The programs are ideal for very low-to-moderate income earners as it allows them to buy homes without a down payment. Individuals with income below the area median income may be eligible for a loan guarantee. Applicants earning very low incomes, on the other hand, are eligible for a direct subsidized government loan. Notably, not all rural areas are in the boondocks. According to the USDA, you don’t have to purchase a home within the farm belt to be eligible. In fact, an extensive majority of the landmass in the United States falls within the USDA’s ‘rural’ category.
- Good Neighbor Next Door
Teachers, emergency medical technicians/firefighters, and law enforcement officers who meet all the requirements of this program qualify to enjoy 50 percent discount when they purchase HUD homes. Furthermore, if you finance the purchase with an FHA loan, the down payment required is almost zero.
- Down Payment Assistance
The program can be furnished by charitable foundations, local governments, and other agencies. However, it cannot be offered by anyone with financial interests in the sale of the property. Most similar programs are limited to first-time homebuyers interested in primary residences and come with income guidelines. Down payment assistance may either come as a grant or a silent second mortgage with no payments.
- FHA Loans no down payment
It is true that FHA loans requirements down payment of at least 3.5 percent of down payment. The money, however, isn’t provided by the homebuyer. The buyer can get the down payments from employers, friends, relatives, loans, and from other organizations.
- Lease Option
These are components of part purchase agreements and rental agreements. For rent-to-own deals, renters lease their homes for a stipulated time period, usually prearranged. They may be required to pay a monthly rate higher than the market price or an option consideration upfront. If you do pay the additional amounts, the higher amount of rent and option consideration are escrowed.
Most prospective home buyers are required to put down a down payment of at least three to five percent of the cost of the new home to get a mortgage. However, regardless of the home loan you get including sweat equity mortgage loans, make certain that you can afford its mortgage payments as well as other homeownership costs every month.