Do I Need a Down Payment to Buy a House?

With today’s high rent prices, it makes sense to wonder if purchasing a home is a better option. However, it’s not always easy to save a big chunk of money to put down upfront — especially if you’re a first-time home buyer. The good thing is that there are lending programs designed for buyers with very little savings, and some even make buying a house without a down payment possible.

Most lenders require some money down on a mortgage loan. When buyers can pay 20% of the purchase price upfront, they avoid paying private mortgage insurance (PMI) which can add between .5 and 1.5 percent of the total mortgage. PMI protects the lender’s investment should a buyer falter on the loan. Plus, having a higher amount to put down shows financial responsibility and accountability, often resulting in a lower interest rate.

But many buyers don’t have that kind of money upfront. Instead, they opt for mortgage programs such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, which are specifically designed for first-time buyers and require as little as 3% for a down payment. 

Still, the average median sales price of St. Louis homes is $250,000. To put down even 3% on a home like that, buyers have to come up with $7,500 to make a purchase. In today’s economy, that’s just not that easy for many. It’s no wonder why more buyers are asking about the possibility of buying a house without a down payment.

Fortunately, some government-backed loan programs do not require buyers to put down any money at all. These include:

VA Loans

The Department of Veterans Affairs offers loans to eligible veterans, active-duty service members, and certain surviving spouses. This type of loan does not require a down payment or mortgage insurance, but it does require a one-time funding fee between 1.4% to 3.6% of the loan amount to be paid upfront.

USDA Loans

Buyers in rural and suburban areas can take advantage of The U.S. Department of Agriculture (USDA) loans, which don’t require a down payment or a minimum credit score. Eligible income varies by state, but in general, cannot exceed 115% of the median income in the county where the new house is located.

First-Time Home Buyer Programs

Many states, counties, and cities offer first-time home buyer programs that provide down payment assistance. They are limited to low-income applicants and usually require the buyer to take pre-purchase education classes to help ensure they are financially prepared to make such a big investment. The Missouri Housing and Development Commission offers the First Place Program, which provides cash assistance for the down payment and closing costs on any eligible property in the state of Missouri. 

Down Payment Assistance Programs

Some state programs help eligible buyers make a purchase without a down payment even if it isn’t their first home. The Illinois Housing Development Authority’s HFA1 provides $10,000 for down payment and closing cost assistance. The down payment is an interest-free 2nd mortgage with payments deferred for 30 years, meaning funds do not need to be repaid until the borrower sells the home, refinances, or pays off their mortgage.

Buying a house can be an excellent investment if the timing is right. But securing a down payment and being able to afford the monthly mortgage payments are only some of the expenses of owning a home. You also have to be prepared for costs such as:

• Property taxes, which in St. Louis County are around 20% of the assessed property value. 
• Utility costs including gas and electricity, which average around $350 a month for a modest home.  
• Homeowners' association (HOA) fees if there are any, which range from $200 per year to $200 per month depending on where you live.   
• Maintenance and repairs, which are typically around 1-4% of the value of your home each year. Remember…if the washing machine breaks or you need a new roof, it’s up to you to pay for it! 
• Lawn care. Having your own yard is exciting, but remember that it will require buying a mower or hiring someone to mow the grass.

Once you are certain that homeownership is within your budget, the agents at Berkshire Hathaway HomeServices Select Properties have the expertise and experience to help you achieve it. 

While saving for a down payment is always a good idea, it’s just not realistic for everyone. We have worked for years in Missouri and Illinois and can point you in the direction of city and state programs that offer down payment assistance as well as low-interest options that help make homeownership affordable. We have excellent relationships with mortgage lenders all over the area and work closely with Nations Lending. 

We would love to help your dreams come true. Contact us today to get started.

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