First Time Homeowners Loans with No Down Payments

First time homeowner loans are available from a number of sources, from government backed lending agencies like the FHA or VA to standard lenders. Of course, if you do not have a down payment to put down on your house, you may be more limited in who you borrow from or your loan may cost you more money. As such, it is important to do your research to understand what loan options are available to you, especially if you don't have cash to put down.

Buying a Home with No Down Payment

Most lenders require a 20 percent down payment to purchase a home. The purpose of the down payment is to protect the lender. The home you are buying is supposed to be collateral that guarantees the loan, which means that if you don't pay, the bank should be able to take the house and sell it to get their money back. If you put nothing down and the bank finances 100 percent of the house, it is risky for the bank because if the home falls in value, you may owe more than it is worth and the mortgage will be undercollateralized.

This doesn't mean it is impossible, however, to buy with less than 20 percent down. You have a few options available to you, especially as a first time home buyer. You can, for example:

  • Look into FHA loans or VA loans that require a smaller down payment. FHA and VA loans are loans issued by traditional lenders but backed by the government. You may be able to buy a house under one of these programs with as little as three to five percent down.  Of course, this does mean you have to come up with that 3-5 percent in cash.
  • Look into grants for first time buyers. If you don't have any money at all down payment, you may be able to qualify for a grant to pay a small down payment. These grants commonly go to individuals who take FHA or VA loans. You'll have to qualify for the grant, and usually this means proving your income is below a certain level or that you'll be buying in disadvantaged areas.
  • Consider an 80-20 loan. This involves taking an 80 percent first mortgage and a 20 percent second mortgage.   It allows you to avoid something called private mortgage insurance (PMI) which is required if you borrow more than 80 percent of the home's value from a single lender.

Getting Help

As a first time home buyer, the process of getting a home and mortgage can be very confusing. It is a good idea to get help from a real estate lawyer and/or mortgage professional to make sure both the agreement to buy the house and the agreement for financing are fair and reasonable.

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