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What are the Benefits of No Down Payment

Carol Trehearn

For many adults, the thought of buying a home seems out of reach. Maybe you’ve looked at local home prices and pushed the idea of home buying out of your mind. High prices can be intimidating. Renting seems far more accessible, but is it?

What if you could become a first-time home buyer and own a home with no down payment? It’s possible. In fact, you might just qualify for a new home right now.

What Does “First-Time Home Buyer” Really Mean?

The term “first-time home buyer” generally refers to an individual who purchases a residential home for the first time. This includes taking out a home loan for the principal residence, where they will live for most of the year. First-time home buyers can qualify for special benefits such as:

  • No down payment
  • Low down payment
  • Special grants
  • Assistance with paying closing costs
  • Other incentives

The US Department of Housing and Urban Development (HUD) further expands the definition of “first-time home buyer” to include:

  • Someone who has never owned a primary residence for a three-year period ending on the date of purchase of the new home
  • An individual who has never owned a primary residence if their spouse was a homeowner
  • A single parent who owned a home with an ex-spouse
  • A displaced homemaker who only owned property with a spouse

In all of these cases, the extra incentives that come with a first-time home buyer assistance plan can be the difference between moving into a new home or remaining in the rental market.

Buying a Home With No Down Payment

Of all the benefits available to first-time home buyers, no-down-payment loans are some of the most attractive. What are they?

Unless you have enough cash on hand to pay the full purchase price of the home, you’ll need to secure financing. When you look at most mortgage loans, they require some contribution to show good faith in purchasing the home. This contribution is a payment you’ll put toward the house and is referred to as a down payment.

For example, if you purchase a home for $100,000 and put down $10,000 cash, that is a 10 percent down payment.

Many first-time home buyers believe that down payments are an automatic part of the home-buying process. They’ve seen home loans touting 10 percent, 20 percent down payments or higher, which can be intimidating, especially as the median price of a home in America (as of first quarter 2022) is $361,500.

A no-down-payment loan gives first-time home buyers a chance to get into their own houses without the costs usually associated with a loan. It makes homeownership a reality, giving people an opportunity to build equity in a way they might never have thought possible before.

Benefits of No-Down-Payment Loans for First-Time Buyers

Saving for a house can seem like a never-ending process for some, which is why first-time home-buying programs exist. They make homeownership possible, but also offer special incentives for people purchasing their first homes.

Benefits might include:

Flexibility

First-time home buyers often overestimate how much of a down payment they can afford, which keeps them out of the market for purchasing a home. Many assistance programs are available that make getting a home loan more flexible. Think of it as designing your final monthly payment on your terms.

No-down-payment loans are often available for well-qualified buyers through lender such as Solarity Credit Union. Some even waive lender fees and offer reduced private mortgage insurance (PMI). USDA home loan programs offer reduced rates that allow closing costs to be rolled into the total loan amount.

With so many different programs available, you’ll find options available to help you achieve your housing goals.

Not Having to Save a Large Down Payment

Saving for a large payment can be difficult at best. It can take months—even years—to accumulate even a fraction of what many homes are priced at these days. With a no-down-payment loan, it means you can get into a home faster and start building equity with every payment you make.

Ability to Buy Sooner

While the younger generation may be starting to look at homeownership as an option, statistics still show that the median age of purchasing a home is rising. In 1981, the median home buyer was 31; now, it’s closer to 47, up 8 years in the last decade alone.

Most of that increase can be attributed to home prices being higher than ever. And with many first-time homeowners also carrying a lot of student debt, it can make buying a house even more difficult. No down payment gives buyers a chance to move into a place sooner, despite other issues that may be holding them back.

Save Your Savings for Other Things

Despite saving for a down payment, many home buyers are nervous about emptying their savings accounts to come up with a down payment. And for good reason. According to a study from the National Association of Home Builders, homeowners incur an average of $10,601 of additional expenses in the first year after buying a home on everything from new appliances to home repairs.

With a no-down-payment loan, you can hold onto your savings for all those other expenses that can pop up once you’re in your home.

Are You Ready to Buy a New Home?

Buying a new home is one of the most exciting times in your life. You’re excited about the floor plan, ways you’ll spruce it up, and how you’ll add your own personality to each room. You can’t wait to get to know others in the community. But are you ready to buy?

Before you head out and start looking at houses, consider your home loan options first. As a no-down-payment first-time buyer, you can get into the house of your dreams and have enough money left over to make it the home of your dreams. Discuss your first-time homebuyer options with a home loan expert at Solarity Credit Union today.