Buy a House With No Down Payment

I’ve had clients tell me they were ready to buy a house—but then qualify that by saying, just as soon as they get a big load of cash from an insurance suit they have lodged. So I really can’t take them as seriously as I would like. Because who can say what the outcome of an insurance suit will be and when it might happen, if ever.

There are tons of folks who subscribe to the “American Dream of Home Ownership”. These are people with the desire, but often not the ability to make a purchase.

And then again, we can’t forget all the “programs” designed to help families buy a home of their own. For years I was a director at Habitat for Humanity—heck, we gave homes away to families that qualified. And with all due respect, sometimes we had to look pretty hard to find a qualifying family for a house we were ready to build. So if you think you might like a Habitat home, make your application and see what happens.

The people who are pretty sure they wouldn’t qualify to buy a home, usually don’t even consider it. They know they don’t have a down payment or their credit isn’t perfect. But the truth is that with a little time, work, and patience, homeownership can be a reality. You just need the right people in your corner.

So let’s talk about the down payment. You know that’s the big chunk of cash, as much as 20% of the cost of the home you want to buy.  And not having enough down payment often stands in the way of becoming a homeowner for many people. But there are available programs on the city, state, and federal level which can help make the home ownership happen.

In an effort to assist low- to moderate-income individuals achieve homeownership, the Florida First Time Home Buyers (FTHB) program offers borrowers an assortment of down payment assistance options. The assistance comes in the form of a grant, or a 0% interest or low, fixed-rate second mortgage. Only one Florida Housing down payment program can be used by the borrower and only in conjunction with the FTHB program first mortgage products.

For a Federal Housing Administration (FHA) loan, the most common loan type for first-time home buyers, requires a minimum down payment is 3.5 percent. However, a number of nonprofits can help middle-income buyers with down payments. There are loans available which require no down payment at all. VA loans for example are often overlooked when in fact they provide qualifying former military members a zero percent down loan.

Florida Housing’s Homeownership Pool (HOP) program provides down payment assistance on a first-come, first-served basis. Eligible homebuyers are those whose adjusted income does not exceed 80% AMI. Through this program, they can receive a 0% deferred second mortgage loan for the lesser of 25% of the purchase price of the home or $70,000, or the amount necessary to meet underwriting criteria (with the exception of eligible homebuyers with disabilities and eligible homebuyers at 50% AMI or below, who may receive the lesser of up to 35% of the purchase price or $80,000).

If you qualify for a conventional loan (the least-expensive type, which conforms to tougher rules written by giant mortgage companies Fannie Mae or Freddie Mac) you’ll need a down payment of at least 5 percent.

There are also federal programs like the Federal Home Loan Banks’ Affordable Housing Program (AHP). A knowledgeable lender will be able to tell you how much you need to come up with for your down payment and recommend any available grants or assistance programs to help offset the costs.

Once you’ve figured out how to get your down payment taken care of, it’s time to think about closing costs. Closing costs can be one of those unexpected expenses that sneak up and bite you if you are not prepared. They range between two and seven percent of your loan amount - but before you freak out and decide you’re definitely not homebuyer material, there are ways to get help here too.

There are Assistance programs that offer down payment funds often allow funds to be used to pay closing costs.  Depending on the strength of the real estate market in the area in which you are buying, the seller may kick in closing cost assistance.  A good lender may be able to figure out an equation within your particular loan parameters to offset closing costs through a credit.

If you have credit (score) issues, start by addressing these problems as much as a full year before applying for a mortgage. Don’t expect to qualify with anything lower than a median score of 620 on the three credit reports (Experian, Equifax, and TransUnion). The higher the median score, the more likely it is you will qualify without extra effort and the better your interest rate can be.

If your scores are low, go on the offensive. The world of credit repair is complicated and frustrating and often makes no sense whatsoever, but success stories are out there.  Find a mortgage agent you like, and trust—and follow their suggestions.

Dane Hahn is a real estate professional affiliated with Sarasota Realty Associates in Venice, FL. You can reach him at 941-681-0312 or by email at dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com