Mortgage Options – How do I get a home loan with no down payment?

Despite earning a decent hourly wage, arthritis and chronic migraines (triggered by a car wreck years ago) leave me only able to work part time. I am unable to save for a 20% down payment. Traditional home loans are out of the picture. I am sure what little I can save would need to go toward deposits to turn on utilities. So, my first big step toward home ownership is to research options that require little or no down payment.

Living in a rural area, I found three loans that may work for me:

USDA Direct Home Loan

The United States Department of Agriculture will directly provide loans for individuals meeting eligibility requirements to buy a home in specific rural areas. This can be an excellent deal for individuals who do not qualify for other loan options. However, it is recommended that this loan type be a last resort. Getting a USDA Direct loan is a slow process and the program has limited funding. Their rules are also a bit stricter than those of other loans.

• For individuals with a low or very low income. “Very Low” for a family of 2 is $21,650 per year.
• There is no down payment.
• Money will come directly from the USDA.
• Interest rates can be subsidized down to 1%, and repaid at the end of your loan term or when you sell the house.
• Debt-To-Income ratios are 29/41. Exceptions may be made up to 34/47.99.

Update: July 2015 I found a house I REALLY like, but the debt-to-income ratio rules were too strict with this program. Although I would have been able to repay a loan with the current 3.25% interest rate, they were unable to approve my $72,500 request due to a high balance on my student loan debt.

USDA Guaranteed Home Loan

The USDA can also help individuals who meet certain requirements get a loan from (specific) other lenders to buy a home in a rural area. They do this by guaranteeing that a certain percentage of the loan will be repaid. This is good because the banks are not risking a large loss.

• For individuals with a low or moderate income.
• There is no down payment.
• Your loan will be from a bank, but the USDA guarantees a certain percentage of the loan. This allows the banks to give you a decent interest rate without risking a large loss on their part.
• There will be no subsidy on the interest rate.
• Debt-To-Income ratios are 29/41. Exceptions may be made up to 32/45.

FHA

I just started looking into this program when I heard back from a lender with the USDA Guaranteed program. I will research it more and update soon.

• For …
• There is a 3.5% downpayment. However, there are programs to get your down payment and closing costs covered (at least partially) by a grant.

What is Debt-to-income?

You will notice that there are 2 numbers for the debt-to-income ratios. The first number is what percentage of your income can be put toward paying your mortgage. The second number is what percentage of your income can be put toward your mortgage PLUS other debts.

Debt-to-income is calculated by dividing your debts by your income. Example:

• You earn $1,000 per month.
• Your mortgage is $300 per month.
• 300/1000 = 30
• You also spend $100 per month on a credit card and $50 on student loans.
• 300+100+50=450 …. 450/1000 = 45
• Your debt-to-income is 30/45. This is over the standard 29/41. It will be harder for you to qualify for a loan, but you may be able to get an exception since these numbers are still less than the maximum DTI (debt-to-income).

What is included in a mortgage?

I am new to this. But from what I can tell, at least with these programs, it is normal for your mortgage to include: your loan repayment, property taxes, mortgage insurance, and home owner’s insurance. You may also have a portion of the closing costs rolled in with your loan amount.

October 2021 Update:

I ended up getting the USDA Guaranteed Home Loan just in time! I was approved right before they tightened the rules for how they calculate student loan debt.