When you hear someone say, “buy a home with nothing down”, it can make you feel like it’s too good to be true or a little spammy. It may make you think of those late night commercials about investment properties, and how you can buy those with nothing down and get rich in the process.
That is not what this article is about. This article is meant to help first time home buyers literally buy their first home with little to no out of pocket costs.
There are several ways to do this. Here is how first time home buyers can do it:
- Choose the right first time home buyer loan.
- Apply for down payment assistance programs. (If applicable)
- Obtain closing costs assistance from the home seller
Choosing the Right First Time Home Buyer Loan:
Veterans should check their eligibility for a VA Loan. VA Loans provide 100% financing, no mortgage insurance and low fixed interest rates.
Those shopping for homes in rural counties should look into USDA loans. USDA Loans offer 100% financing, low mortgage insurance premiums and low fixed interest rates.
If your situation is none of the above, as a first time home buyer, you should apply for an FHA loan. FHA loans require only a 3.5% down payment, are easier to qualify for and have low fixed interest rates. However, the mortgage insurance rate is 1.35% compared to 0.40% with a USDA Loan.
Apply for a Down Payment Assistance Program:
(If you qualify for a VA or USDA Loan this is not necessary)
There are various down payment assistance programs that will offer a $5,000 grant to assist first time home buyers.
If you were buying a $150,000 house with FHA financing, the 3.5% down payment would be $5,250. With a down payment assistance program that would leave you only contributing $250.
Obtain Closing Costs Assistance from Home Seller:
VA, USDA, and FHA Loans all allow the seller to pay up to 6% of the purchase price of the house towards the closing costs. With a home purchase, there are various settlement costs. You have title fees, escrow, appraisals, inspections, state taxes, county taxes, etc. If you request seller assistance of about 3-4% as a part of the purchase contract that will generally cover what would be your share of the closing costs. For example, if you were putting an offer on a home selling for $150,000. The seller would be contributing 4% of the purchase price toward the buyer’s closing cost. In this case that would amount to $6,000.
If you are a first time home buyer you may want to consider getting a Realtor to represent you. Their experience in bargaining for a lower price and/or closing cost assistance can be very helpful. The good thing about a buyer’s realtor is that the buyer does not pay for the realtor services they are receiving. The seller generally pays 6% in realtor fees. Those fees cover all realtor commissions. If you buy a home without a realtor representing your interests, then the seller’s realtor makes the entire 6% commission. If you choose a realtor to represent you, then the two realtors split the seller paid commissions between them.
If you are in the market to buy a new home, use these tips to buy your dream home with little to no out of pocket costs.
About the Author:
Gerald Bouthner is a Loan Account Manager with Buy a New Home in Maryland and licensed Lender in MD, DE, PA, VA, D.C., FL, TX, SC, NC, OR, and IL. He specialize in first time home buyer loans.