How To Buy a Home with Little Money

Nov 23, 2022   |   5 min read

 

How To Buy a Home with Little Money

 

One of the best achievements and investments you could ever make for yourself or your family would be purchasing your own home. Paying rent can be quite costly, especially if you are one of those who consider renting as a temporary solution for proper homing. Instead of paying for rent, it'll be better if you could allot that money for paying for your home, which can help to make everything worth it. But with little money, owning a home might feel close to impossible. 

As you decide to be a homeowner, you might feel stressed about making it happen, especially if you only have little in your pocket. But don't worry, as there are more ways to make it happen. This article listed some ways to help you buy a home with little money:

Apply For A VA Loan

Applying for a VA loan has been getting more widely known as it can provide plenty of benefits and helps those who qualify for it. You may be wondering, 'can you buy land with a VA loan?' First, you'll need to ensure you've met all their requirements. 

Suppose you or your spouse have met the minimum service requirement from the Department of Veteran Affairs, carry a valid Certificate of Eligibility (COE), and meet the lender's minimum requirement for income and credit score. In that case, you can apply for a VA loan. 

The minimum service requirement includes: 

  • Served 90 days during active wartime 
  • Served 180 days during active peacetime
  • Served six years in the Reserves or National Guard

The VA loan doesn't require any down payment as long as the sales price is under the appraised value. This'll allow you to go straight ahead with monthly fees rather than worrying about releasing a large amount of money. Alternatively, this type of loan might offer lower down payment costs or interest rates, which can help you reduce your monthly bills and save money. 

Consider Applying For A USDA Loan

The United States Department of Agriculture or USDA loan program, more commonly known as rural development loan, aims to help people earning moderate to low income purchase their own homes. Moreover, they also provide no down payment and low-interest rates to fully help families buy their own homes without burning a hole in their pockets.

Through a USDA loan, an individual can purchase a condo, townhouse, foreclosed property, existing house, or manufactured home. In some cases, they can let the seller or lender handle the closing fees, lender fees, and mortgage insurance to help reduce the lender's cost.

To apply for a USDA loan, you must meet the following requirements and criteria:

  • A dependable income
  • Be a primary residence in a rural area
  • Have a good credit score
  • Buy a property around your place of residence
  • Your debt-to-income (DTI) ratio must be a maximum of 41%

For guaranteed loans, you shouldn't be earning more than 115% of the median score around your area.  

Ask For DPA

When you purchase a property through a mortgage, the seller will usually require a down payment to secure the property and put them at ease. This implies that you can afford the payments required for the mortgage.

However, with little money, it might be difficult for you to pay for the required down payment, forcing you into postponing your house-buying process or looking for a cheaper property.

Luckily, there's now a Down Payment Assistance (DPA), which can help first-time home buyers to buy a property without requiring them to pull out immediate cash. To qualify, you shouldn't own any property within the last three years. However, if you own a rental or investment property, you will not be eligible for a DPA even if you don't live in the property.

How much you'll get will depend on your income, credit history, and state. So, it's best to connect with the lender first to confirm how they can help. 

Opt For An FHA Loan

Federal Housing Administration (FHA) helps homeowners to purchase their new home with a minimum of 3.5% down payment. This is a great and more affordable option as most homes will usually require at least a 20 to 50% down payment so that you can allow their property to be yours. However, you can only avail of this low-down payment feature if you have a good credit score. In cases where you have a credit score of 500 and lower, you'll need to pay at least a 10% down payment for the FHA loan to proceed. 

With that, an FHA loan will require proof of income or employment to qualify. It will also need a DTI ratio of a maximum of 43%. However, there might be cases wherein the FHA might bump it up by at least 56.9%. 

Ask For A Down Payment From Families

No matter how much you try to save for a house, it might feel insufficient as you need to pay for plenty of things. If you cannot apply for a down payment loan from various lenders as you do not qualify for their minimum requirements, you might consider asking for one from your friends or family. If you're fortunate enough to have someone who likes to help you build your own home, you might want to ask them for a favour or a gift. While this might not be for everyone, it's still worth considering. 

However, this will require proper documentation as you still need to apply for a loan and pay your monthly mortgage. When someone gives you a down payment as their gift, you'll need a paper trail to show how they gifted you the money, when they transferred it to your account, and who gave you the gift. You should also make a legal document stating that repayment isn't required so that you won't add any debts to your list. 

Let The Seller Handle Closing Costs

The cost of buying a house isn't solely focused on how much the owner sells it for. Apart from the actual price of the property, you'll also need to pay for the closing cost, which can vary from 3% to 6% of the total loan amount. This might be out of your budget, especially since you're looking for a cheaper alternative. 

If you're purchasing a property with a higher supply than demand, you might consider asking the seller to handle the closing costs. That'll help you save money and motivate the seller to comply with your request, as there are few buyers around the area, and the competition is quite high. However, this is still not a guaranteed output, but something you might want to try.

Takeaway

Buying a home with little money can be challenging, especially if you're eyeing good properties. But if you qualify for some loan options mentioned above, you might be one step closer to acquiring your dream home. With a bit of research and improvement in your credit score, you should be able to purchase a home without bringing out plenty of cash.

Frequently Asked Questions