Buying a house, with no money down, almost sounds too good to be true. Well, it is possible if you qualify for the mortgage. And, if you cannot, you can still buy a home with a very low down payment and negotiate to have your closing costs paid for by the seller.
Either way, there are ways to get into a home with less money than you may think. So, how do you buy a house with a lower or no down payment? The first key is to find a good Realtor and a mortgage lender that has the loan products available.
Not all mortgage lenders are equal. Some have different loan types that can help you get the best possible deal available. In addition, having a good Realtor who understands the loan process and what type of home qualifies will save you time and money.
So, buying a home in Indianapolis with a low down payment, or anywhere in Indiana, isn’t as challenging as you might think.
Let’s take a look at different loans and the down payment requirements and see if you can find one that will work for you.
Buying a Home in Indiana, No Down Payment VA Mortgage
A VA loan is reserved for Veterans that have served in the military. With a VA loan, you do not have to have a down payment to buy a house. You are still responsible for your closing costs which could be negotiated with the seller. There is still a minimum out of pocket expense. For instance, when you write an offer, there is normally some type of monetary consideration given as a deposit that ensures you will go through with the purchase of the home. Keep in mind in order for the home to pass a VA appraisal, the house must be in good condition, so no fixer uppers on a VA purchase.
What is a USDA loan? A USDA loan historically was a loan that was specifically used for homes bought in an agricultural area. This no or low down payment loan is backed by the United States Department of Agriculture. Today, this mortgage is still primarily for rural locations but you might be surprised to see additional areas where this loan can be used. There is a map that outlines the available areas for USDA Loans throughout the United States.
Not only are USDA loans 100% financing, but they are also more forgiving for homebuyers just starting out that may have a little more debt than income. However, you do not have to be a first-time homebuyer to qualify for a USDA loan. This type of loan is available to a first time or a seasoned buyer.
USDA loans do have some qualifications that the buyer must meet. For instance, your income cannot exceed a certain amount per year. Income guidelines for USDA loans go by region. Getting a USDA loan in the Indianapolis area is possible. Knowing the USDA map will make your search much easier to identify. This is where your Realtor and lender can help. They will be able to provide you the information for loan qualifications.
USDA loans also have restrictions on the condition of the home that you purchase. The idea is to be able to buy a home that is safe and sound. Just like VA loans, USDA loans require the home to be safe, sound and overall in good condition. So, the appraisal does matter. For example, if a home was built prior to 1978, lead-based paint could be an issue. Look for no chipped or peeling paint in homes built prior to 1978.
Some credit unions such as Navy Federal Credit Union offer members low down or zero down payments. Most borrowers do not think of looking at a local credit union for home loans. You may be surprised to find their terms, qualifications, and down payments are competitive or even more forgiving than larger lending institutions. So, check your local credit unions for competitive loans.
State Bond Money (Indiana Down Payment Assistance)
States such as Indiana offer bond money to help buyers with down payment assistance and interest rates. There are “windows” of availability for bond money, which means those funds are reserved and when they are gone, they are gone. Bond money is usually restricted to buyers with limited income. However, verify because how much money you can make is contingent on where you live. Usually larger cities such as Indianapolis allow for buyers to make a little more money than people who reside in smaller communities.
Buying a Home with a Low Down Payment in Indiana
Buying a home in Indianapolis, or anywhere in Indiana, with a low down payment is actually fairly easy to do. There are several mortgage options available that will allow a buyer to purchase a condo or single family home with ease.
Most people think of an FHA loan as a first time home buyer loan. However, this type of loan is available to any buyer if the home and, of course, the buyer qualifies. FHA is probably one of the best loan products for buyers with a little more debt and lower credit score.
Purchasing a condo with an FHA mortgage may be a little more challenging as not all condo buildings are FHA approved. However, if the home you are looking at is not a fixer upper then passing an appraisal shouldn’t be too difficult.
FHA loans require the buyer to have a 3.5% down payment based on the purchase price of the house. The down payment can actually be a gift. There are guidelines that define where that gift can come from but a family member or employer is on the list of acceptable givers.
You can now get 3% down payment conventional loan. The best part about this type of loan is the condition of the home. Unlike an FHA, VA, or USDA loan, conventional appraisals are a little more lenient regarding the condition of the home. For instance, if the home in the near future will require a new heating and cooling system, chances are it will pass a conventional appraisal.
Conventional loans may require a higher credit score or additional cash reserves in your bank account. However, it is worth exploring. The difference between a conventional loan, VA, and FHA are the fees for the loan. A conventional loan can be cheaper for the buyer than an FHA or VA loan.
Piggy Back Mortgage
This is a great term that most buyers won’t forget. And why would you want to? Piggyback loans are just what they sound like. You basically have one larger conventional mortgage to finance the majority of your home purchase and a second (piggyback mortgage) that helps you out with your down payment.
Piggyback mortgages are making a comeback in today’s financing and are worth running the numbers to see if this type of financing makes sense. There are a couple of benefits and one is paying no private mortgage insurance (PMI). PMI is normally charged and paid monthly if you do not have a 20% equity position. PMI is not tax deductible and can be expensive.
Buying a home in Indiana with no money down or having a low down payment is obtainable if you know where to look. Talking with Realtor about your options can help you make an educated decision that will benefit you for years to come.