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Yes Virginia, You Can (Still) Buy A Home With Little/Nothing Down

By
Mortgage and Lending with Bank of England (NMLS#418481) NMLS# 1046286

Back In The Day

Back in the day (pre 2010 or so) it wasn't unusual at all for a person with at least half way decent credit to be able to buy a home with little or nothing out of their pocket.  I personally did hundreds, if not thousands of these transactions.

My favorite way to structure these deals was by originating an 80% loan to value first mortgage, then to piggy back a 20% second mortgage on to the first.  With the seller paying the buyer's closing costs and/or prepaids, this generally meant that the buyer would get to closing and then not only walk out of the transaction with the keys to their new home, but would also generally be credited back their earnest money and appraisal fee.

Well, those days are gone now, but not completely! There are still programs available to help a potential home buyer become a home owner with little or nothing out of their pockets, but they usually come with requirements such as previous military service (VA) or that the property has to be located in a "rural" area (USDA), but they are available.

 

VA Home Loans

The Veteran's administration (VA) program does not require a downpayment and the seller can indeed pay for the buyer's closing costs and/or prepaids.  Unfortunately, as mentioned above, in order to take advantage of this program, at least one of our borrower's has to be a veteran.

 

USDA Home Loans

USDA also offers 100% financing and allows the seller to pay closing costs and/or prepaids, but the property has to be located in a "rural" area (I put "rural" in parathesis because eligibility is address specific and I've seen properties that were not very rural, qualify.) and there are, however,  income limits.

So, what if I want to buy a home in town and I'm not a veteran?

Well, you're options are limited, but you do still have options!

 

FHA and Conventional Home Loans

For example, FHA will allow a family member to "gift" you the required downpayment and conventional mortgages also allow for a gift of down payment, but the gift has to at least equal 20% of the purchase price. 

 

Borrowed Funds

Or, you can borrower the down payment from a retirement account or against an asset as long as you income qualify with the repayment that would be required of those loans.

 

North Carolina Housing Finance Agency Program

If none of these options work for you, then you're probably going to have to come up with some money out of your pocket.  If you're buying a home in a state that has a housing finance agency such as in North Carolina, we can still keep that to as little as 1/2 of a percent down.  As with USDA, there are income limitations which vary county to county, but, for the most part, they aren't that restrictive (generally in the $85,000 range for all borrowers) and it's worth at least looking into!

The North Carolina Housing Finance Agency program does require a slightly higher credit score than FHA, but that is something that can often times be worked on if the buyer has a bit of time to resolve any derogatory credit that may be appearing on their credit report.

There are a couple of "strings attached" for the NCHFA program such as the fact that the agency takes a "soft second" against the property that remains attached for the first 15 years that the buyer owns the property.  So, if the property is sold or refianced (or the mortgage is otherwise paid off) the down payment assistance grant will have to be paid back.  After year 10, the second starts to be forgiven at a rate of 20% of the balance per year until it is completely forgiven in year 15.

So, as the title to this post suggests, you can (more than likely) buy a home with little or nothing out of your pocket.  It might take a bit of effort and you will still need what I call, "Wiggle Room" to pay for the earnest money deposit, appraisal fee and a home inspection (if you or your buyer desire one), but that money can indeed be credited back to the buyer at closing.

If you have questions about any of these programs or I can be of service in any manner, please do not hesitate to reach out to me.

 

Legal Disclaimer:  While I am employed with Bank of England, this blog and the opinions expressed within (except those contained on any BOE websites linked to) are purely my own and not endorsed by Bank of England or any of it's affiliate entities. 

Bank of England is an FDIC regulated, HUD/VA/USDA approved, equal opportunity lender chartered in 1898.  It is headquartered in England, Arkansas with offices located in 38 states and able to originate mortgages in all 50 states. 

 

 

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