August 11, 2015

5 Ways to Buy a Home With Little or No Down Payment

Simple. Thrifty. Living.

The conventional wisdom that you should save at least 20 percent of a home’s purchase price for a down payment is generally good advice. However, even with no down payment, or a small payment, buying can make more financial sense than renting. Here are five ways you can buy a home by putting just a little, or nothing, down.

If you or a family member is an employee of the Department of Defense, or if you are in the military or a military civilian employee, a Navy Federal loan may be for you. No down payment is required as long as the home you’re buying is your principal residence. This program has a lot in common with the VA loan program, but with Navy Federal, the funding fee — 1.75 percent — is lower.

VA loans don’t require a down payment as long as you’re a veteran who qualifies. Even better, you don’t need to pay mortgage insurance. You do pay a funding fee, but it’s included in the loan. The fee ranges between just over 2 percent to just over 3 percent, and depends on factors such as if you served in the Reserves or the regular military, and how many VA loans you’ve taken out.

The USDA runs the Rural Development mortgage guarantee program, and the name can be a little misleading. You’re not required to live on farmland or out in the boonies, although you certainly can. Loan amounts vary depending on income criteria, and the program is such a hit that the money runs out quickly every year. In most cases, you must be a first-time buyer to enroll. Also, the loan fees can be included in the loan amount and there is no mortgage insurance.

If your credit score is good, you may qualify to buy a home with as little as 3 percent down. You have to pay private mortgage insurance, but once your balance is less than 80 percent of what the home is worth, you can jettison the insurance.

Federal Housing Administration loans let you buy a home with as little as 3.5 percent down, and you can do it with a not-so-stellar credit history. The downside is that the FHA insurance is higher than private mortgage insurance.

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