Purchasing a home is one of the largest investments that an individual or family can make. With that in mind, entering a mortgage carries significant financial responsibilities. For some people, no-down home loans can relieve some of the initial financial stress associated with a large cash payment upfront.
Unfortunately, not everyone will qualify for a no-down home loan. As you research, it’s important to have a thorough understanding of your financial standing, total savings, and tax bracket. All of these factors could play a role in determining whether no-money-down home loan programs are right for you.
In this article, we’ll shed light on which groups of future homebuyers are eligible for special incentives. Then, we’ll cover the different types of no-down home loans you can expect to find in the traditional housing market.
Who is Eligible for No Down Loans?
While many potential homebuyers wish to relieve their cash burdens at closing time, no-down home loans are reserved for select groups of people. These groups include:
- First-time homebuyers: Some housing programs offer cash incentive for people purchasing their first home. These programs can help remove barriers to ownership.
- Low-income buyers with good credit: Having a lower base income could make it more difficult to stockpile enough cash for a down payment. While this is true, lower take-home pay doesn’t negate the ability to have good credit. If your credit score is high and you make regular payments, you may be eligible for certain programs.
- Homebuyers in rural areas: The United States Department of Agriculture (USDA) offers housing options for high-need individuals in rural areas. These programs come with specific qualifications, including location and square footage of property.
- Military personnel: If you’re on active duty, are a veteran, or are the spouse of a deceased service member, special housing options are available. These may include no-money-down housing initiatives.
Read below to learn more about each type of no-money-down home loan program.
Why are down payments required in the first place?
Some people may wonder why a large cash payment is due at the time of closing. If you’re entering a legal agreement to pay regular payments, why require cash ahead of time?
The answer is simple. From a lender perspective, down payments lower the risk of missed bills or skipped payments. These cash payments guarantee that a bank will receive some part of the loan no matter what circumstances may happen later.
For a buyer, the thought of saving up enough cash for a 20% down payment (a standard amount required by lenders) can feel daunting. It may take several years before an individual or family has that amount of money to spend. But for a buyer, down payments also lower the principal amount of the loan and reduce that debt significantly.
Laying a Foundation: FHA vs. Conventional Loan
As you start exploring down payment options, you may quickly discover that there are all sorts of home loan options. Two of the most popular home loans are FHA and conventional loans. The biggest differences in these types of loans are:
- Available to individuals with credit scores below 600
- Requires mortgage insurance for the life of the loan, regardless of cash down
- Has more restrictions on the type of property you can buy
- Could require a higher down payment percentage
Types of No-Down Home Loans
There are many options when it comes to no-down home loans. Most individuals and families qualify for one specific type. Here’s an overview of the different programs currently available within the United States.
AFI 100 and Chenoa Fund
The AFI 100 Program is available through Fairway Independent Mortgage Corporation in Scottsdale, Arizona. This program is a 100% financing option on the purchase of a new home, and it requires no cash down payment.
This program is available if:
- You have a middle credit score of 620
- You need extra flexibility in your debt-to-income ratio
- Your household has a maximum yearly income of roughly $115,000
The AFI 100 program essentially stretches the limits of some of the other no-down programs. It allows for an expanded debt-to-income ratio, a slightly lower credit score, and a higher income threshold.
Products such as the AFI 100 are funded by a program called the Chenoa Fund, which provides down payment assistance through the CBCMA. This federally chartered government agency partners with quality lenders to better assist low-to-moderate income families. The Chenoa Fund’s mission is to increase homeownership access to credit-worthy individuals who require down payment assistance.
If you’re looking for a first-time homebuyer loan with no down payment, the US Department of Agriculture may be able to assist. This program is known as a Rural Housing Loan and covers financing on 100% of the cost of the home.
According to The Mortgage Reports, USDA loans are “putting people in homes who never thought they could do anything but rent.” This is because USDA loans cater to low-income individuals and offer reduced mortgage premiums.
While USDA loans are prominent in rural areas, they’re also available in suburban neighborhoods and in certain college towns. If you opt for this loan, you will have a maximum purchase cap, but you can also include home improvements in your loan amount.
VA loans are available through the Department of Veterans Affairs. Occasionally, the amount down is dependent on whether a service member is active duty or is in the Reserves or National Guard. The no-money-down option may be adjusted if the loan is a subsequent loan, rather than a first-time home purchase.
VA loans work with private lenders. The loans are not originated within the Department of Veterans Affairs, but they are guaranteed by the VA. Buyers who pay zero cash down are required to submit a funding fee, but it can be rolled into the loan itself.
Home in Five Advantage Program
The Home in Five Advantage Program is another option for Arizona residents in need of assistance. This local program helps “creditworthy individuals buy homes and rebuild neighborhoods,” especially in areas with high foreclosure rates.
In this program, homebuyers receive assistance for down payments and closing costs. There are minimum credit scores, income levels, and debt-to-income thresholds that must be met. Additional assistance is available for public service providers like teachers, emergency personnel, members of the military, and more.
HomePlus Works with FHA and Conventional
The Arizona Home Plus Program is another incredible option for homebuyers in Arizona. This option is offered through the Arizona Housing Finance Authority and offers down payment assistance of up to $19,200 to qualifying Arizona residents.
HomePlus offers a variety of mortgage models based on your needs and financial information. They can help facilitate the following loan types:
- Conforming loan (Fannie Mae and Freddie Mac)
- FHA loans
- Traditional 30-year fixed mortgage
- VA loan for veterans
Qualifications for the Arizona Home Plus Program include:
- Applying for the mortgage on a primary residence only
- A home purchase price of less than $396,680
- Single-family homes, duplexes, condos, and townhouses
- Debt-to-income ratio not exceeding 45%
Visit the Arizona Home Plus Program today to learn about these benefits, requirements, and other important details.
An Alternative: Low Down Payment Loans
Rising housing prices in markets around the nation often contribute to the inability of buyers to produce a large down payment. If that’s the case, a low down payment option could be the perfect solution if you don’t qualify for a zero money down loan.
While low-down programs vary by state, there are also a wide array of national options that buyers may want to explore. The percentage down often varies by lender (and whether that lender is private). Regardless, low-down loans can take your cash at closing from around 20% down to 1-3% of the total home price.
Some of the most popular low-down payment options include:
- FHA Loans - These arrangements are backed by the Federal Housing Authority and offer an average of 3.5% down at closing. While the low cost sounds appealing, FHA loans also carry mortgage insurance for the life of the loan.
- Affordable Loan Solution - This option from Bank of America touts a 3% cash down payment. This program is especially applicable to first-time purchases or future homebuyers who have worked alongside a HUD (Department of Housing and Urban Development) agency.
- Neighborhood Assistance Corporation of America - NACA offers incredible benefits to help low-to-moderate income individuals purchase homes in their community. This program is based on membership and full-time residence but can provide significant freedom in terms of cash down, closing costs, and interest rates.
- Gifts. Some lenders and loan programs will accept a gift from a family member as a down payment.
Have you been searching for no-money-down home loans in Arizona? The team at CENTURY 21 Northwest Realty can provide excellent advice on the local market. By choosing a local real estate team, you receive professional advice tailored to your personal background and preferences.
There’s never been a better time to start your home search with CENTURY 21 Northwest Realty. We can help you locate your dream home, set a realistic budget, and get an estimate for how much home you can afford.
Table of Contents:
Intro: Rent To Own Homes AZ
Chapter 1: Rent to Own Process
Chapter 2: Rent to Own Programs
Chapter 3: Rent to Own Homes Near Me
Chapter 4: Rent to Own Contracts
Chapter 5: Rent-to-Own Success Stories
Chapter 6: Is Rent-to-Own Worth It
Chapter 7: Renting Vs. Buying a House
Chapter 8: Rent-to-Own Credit Repair
Chapter 9: No Down Home Loans
Chapter 10: Down Payment Assistance Arizona