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Low or No Down Payment On A House: What You Need to Know

Low or no money down mortgage loans are like Bigfoot; everyone talks about them, but nobody seems to know where to find one.

It’s true—low or no down payment home loans can be elusive. Hunting one down you qualify for is complicated and time-consuming. Some have complex rules or are for first-time homebuyers only. And some have fees that are too high to be worthwhile.

But unlike Bigfoot, there are well-documented cases of people finding low-cost loans with little money down.  Check out the list of some little-known programs that can help you out, even if you have little money or less than stellar credit.

Navy Federal Credit Union Mortgage Loan

Navy Federal Credit Union is the largest credit union in the USA and offers a no money down mortgage loan.  There is no mortgage insurance, but like a VA loan, a funding fee can be rolled into the loan.  As of this writing, it’s only 1.75% of the borrowed amount.

The fly in the ointment is that you must be a member. According to its website, membership is restricted to the following:

  • Active Duty members, reservists, veterans, retirees, and annuitants of the Army, Marine Corps, Navy, Air Force, and Coast Guard.
  • Army and Air National Guard personnel.
  • Delayed Entry Program personnel.
  • Department of Defense (DoD) civilians.
  •  Government employees assigned to DoD installations.
  • Contractors assigned to DoD installations.
  • Family members of one of the above (grandparents, parents, spouse, siblings, children, or any household member). A household member is someone you share an address with and split a utility bill with. If you’re desperate, consider getting a roommate who works for the US government.

VA Loans

VA loans are low or no down payment. Unlike the Navy Federal Credit Union, only qualified current and former military members may apply.  According to the VA website, only these people are eligible to use the program:

  • Served 90 consecutive days of active service during wartime
  • Served 181 days of active service during peacetime
  • Have been an active member of the National Guard or Reserves for 6 years or more
  • Are married to a service member who died in the line of duty or as a result of a service-related disability

VA loans also have funding fees, which can be rolled into the loan. The fee can be as low as 1.25% up to 3.3%.  The fee depends on many factors, so talk to a mortgage lender for all the details.

FHA 203(K) Loans

FHA loans are low down payment loans. They require as little as 3.5% down, and your credit score doesn’t have to be perfect. There is a 1.75% upfront mortgage insurance premium and an annual premium of 0.8% for those who make the minimum down payment. That’s about $125 a month for a $200,000 loan.

Where an FHA loan shines is if you want to buy a fixer-upper and have little cash.  There are some hoops to jump through, but I used the FHA 203(K) program to purchase a 100-year-old Victorian in Norfolk, VA, and fix it up.

I purchased a foreclosure in an “up and coming” area for $105,000. The house was beautiful but needed serious repairs. FHA fronted me $70,000 to completely renovate the home. I didn’t pay a dime out of pocket.

They funded everything from paint and carpet to foundation work. We even added another bedroom and bathroom.

The total cost of the home was $175,000.  Similar updated homes sell for $210,000 or more in that area.

USDA Loans

If you’re a first-time homebuyer and live in a rural or suburban area, this could be the loan you are looking for. This is a no down payment plan, and no, you don’t have to be a farmer. There are a 1% funding fee upfront and a .35% annual premium.

There are income limits, and usually, you have to be a first-time homebuyer. For very low-income individuals and families, the USDA will issue direct loans (not just insure them), and interest rates can be as low as 1%.

Similar to FHA, they also offer home improvement loans and grants up to $27,500.

To get all the details, see the USDA website or talk to a participating lender.

If you live in the Washington, DC area (including Virginia and Maryland), let the experienced realtors at Eng Garcia help you get the home you love, the financing you need, and help with finding a down payment.


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