How to Buy a Home with Zero or Little Money Down

In recent weeks I have been dealing with the false perception amongst some of my clients that a home buyer in today's market needs to have a sizable down payment. It seems that between the government assertions that we "need to get credit flowing again" to the media's constant negativity about banks and the housing markets, prospective home buyers have been scared into thinking that affordable low down payment loans are no longer available. Not only is this NOT true, but the current economic crisis has actually created NEW and BETTER buying opportunities for home buyers with little or no money down.

How is this possible? The answer is simple.

First, home prices have fallen so low that properties once out of reach of government loan programs like FHA, VA & USDA, are now well within these government loan limits. For example, in 2005 it was almost impossible for an airman stationed at Luke Air Force Base in Glendale, AZ to qualify to buy the medium home price in the surrounding communities of Litchfield Park, Goodyear, Glendale, or Surprise. Today these real estate markets have fallen by more than 50% with homes priced at $300,000 in 2005 now selling for under $150,000. With rates under 5% that same airmen can buy a beautiful home for less than it would cost to rent! With zero money down!!!

Second, the glut of foreclosed homes owned by the government and big banks has forced these institutions to offer special financing and incentives to lure buyers. These wonderful NEW programs, combined with historically low interest rates, are better than anything offered during the "boom" years.

So, how do you take advantage of these changes? Here are some of the easiest ways to buy a home with little or no money out of your pocket:

1. Obtain FHA Financing. In most parts of the country the median home price has fallen well below local FHA loans limits. In my market (West Valley Phoenix, AZ), a vast majority of properties are eligible for FHA financing. Some key advantages of FHA loans:
   1. 3.5% Down Payment
   2. Easier to Qualify than Fannie Mae or Freddie Mac
   3. Seller paid closing costs
   4. Inexpensive, guaranteed mortgage insurance (Cheaper than PMI)
   5. Interest rates comparable to conventional loans which are at historically low levels!
2. Buy a Fannie Mae or Freddie Mac Owned Home. Both of these "Government Sponsored Enterprises" have enormous inventories of properties listed for sale. You can view Fannie Mae owned homes by clicking FNMA OWNED HOMES and Freddie Mac homes by clicking FHLMC OWNED HOMES. Some special characteristics of buying a GSE owned home:
   1. 3% Down Payment with NO Mortgage Insurance
   2. Easier qualifying guidelines than traditional conventional loans
   3. Special seller incentives including seller-paid closing costs
   4. GSE owned homes are often priced well below the current market!
3. Buy a HUD Owned Home. While the US Department of Housing and Urban Development does not have as large of an inventory as Fannie Mae and Freddie Mac, they still maintain a sizeable quantity of government owned homes. You can view HUD homes for sale by visiting HUD OWNED HOMES. Some things to consider when buying a HUD home:
   1. $100 Down Payment. Yes, that's right, $100!
   2. Seller Paid Closing Costs
   3. Interest rates comparable to conventional loans which are at historically low levels
   4. HUD owned homes are often priced well below the current market.
4. VA Loan for Veterans. VA loans exist for US Veterans and active duty service personnel. Like FHA loans, VA loan limits often exceed median home prices in most markets. Some key features of VA loans:
   1. Zero Down Payment
   2. Seller Paid Closing Cost
   3. No MI Insurance (although there is a VA Funding Fee added to initial loan)
   4. Easier to qualify than Fannie Mae or Freddie Mac
   5. Interest rates comparable to conventional loans which are at historically low levels
5. USDA Loans. Although designed for "Rural" property, USDA loans can often be used to buy residential property in select zip codes. USDA defines "rural" as communities with fewer than 20,000 in population so many suburbs are eligible under this program. USDA loans require zero down payment and have easier qualifications than conventional loans. However, there are specific income and property requirements so you should speak to a USDA loan expert before considering this option. You can learn more about USDA loans by visiting USDA Single Family.

Please keep in mind that this is not an exhaustive list of low down payment sources. There are numerous state and local programs that may also be available. For example, my local cities of Goodyear, Avondale, Glendale, Surprise and Phoenix all offer some form of government assistance for buying foreclosed properties. You should check with your local Realtor for information regarding these programs.

Finally, I should note that all of these loan programs do typically require good credit and full income qualifying. Generally speaking you will need a minimum credit score of 580-620 to qualify, and your total debts cannot exceed more than 38%-43% of your gross monthly income. And these programs are designed for owner occupied buyers, not investors.

There truly has never been a better time to buy property than right now. I only hope that prospective home buyers are able to see through the clutter and negativity to realize what a tremendous opportunity awaits them in today's real estate market...

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