Find the cheapest way to buy a house.
Houses on the cheap are hard to come by these days.
However, this does not imply that first-time buyers are priced out of the market.
Many purchasers are able to comfortably meet their monthly mortgage payments.
The main issue they face is raising funds for a down payment and closing charges.
Fortunately, there are a variety of options for lowering your down payment and closing fees so you can buy a house without having to pay a large deposit.
You can combine these tactics to find the most cost-effective strategy to purchase a home.
If you’re lucky—or resourceful—you might be able to move in without spending much money.
1. Get a mortgage with no money down.
A mortgage with no down payment may appear too good to be true.
However, there are two types of loans that do just that.
If you qualify for either, you’re well on your way to owning a home with little or no money down.
Loans from the Veterans Administration
If you’re an active–duty military member, a veteran, or a member of a connected group, such as surviving spouses, you’ll be eligible for a VA loan.
The Department of Veterans Affairs backs these mortgage loans, which are designed to make homeownership more accessible for veterans who have served in the military.
If you qualify, this will almost certainly be part of your cheapest home-buying strategy.
The following are some of the advantages of a VA mortgage:
There is no requirement for a payment.
Closing costs are low.
There is no longer any need for mortgage insurance.
The lowest mortgage rates are usually found in this area.
Credit standards that are more flexible
An upfront funding charge is required for VA loans.
However, you may be able to include this in the loan amount and avoid paying it in cash.
Closing expenses for other VA loans must be paid at the time of closing.
However, keep reading to learn about programs that can help you save money.
Some VA loan borrowers are able to move in without paying anything up front.
Loans from the USDA
The United States Department of Agriculture (USDA) offers another zero-down alternative in the form of USDA loans.
To be eligible for a USDA loan, you must be purchasing in a designated “rural region,” which covers 97 percent of the United States.
You must also have a low–to–average household income in the area where you’re buying.
Other restrictions apply, but if you pass those two, you have a good chance of qualifying.
USDA mortgages, like VA loans, provide:
There is no payment required.
Mortgage rates are frequently below the market.
Mortgage insurance premiums are lower.
For those who qualify, down payment assistance programs may be able to aid with closing costs.
USDA loans, while requiring monthly mortgage insurance, are less expensive than other low–down–payment loan options.
This is a great way to get your foot in the door as a homeowner at a reasonable cost.
Take out a mortgage with a minimal down payment.
If you aren’t eligible for VA or USDA loans, don’t worry.
Because there’s a strong chance you’ll be able to buy a new home for as little as a 3% or 3.5 percent down payment,
FHA loans are a good option for buyers with less-than-perfect credit.
If you have a credit score of 580 or higher, you may be able to get a loan with a 3.5 percent down payment.
And if your FICO score is a little higher, the news is even better.
Many people with credit scores as low as 620 can get a Fannie Mae or Freddie Mac conforming loan.
And some of them have down payments as low as 3%.
There is no such thing as a “minimum borrower contribution” in any of these lending arrangements.
That means you won’t have to pay for the down payment or closing charges out of your own pocket.
If you qualify for help, you can cover all of your upfront costs with grants, gifts, or down payment loans.
3.Obtain funding in the form of a gift, grant, or loan to cover your initial expenses.
As previously stated, first-time home buyers can frequently receive assistance with their down payment and closing fees.
This is how it works.
Grants and loans for home purchases
DPAs (down payment assistance programs) should be more well-known.
Across the country, there are many of these, with at least one (usually several) for each state or county.
Each DPA program is self-contained, with its own set of regulations and services.
As a result, we can’t declare that if you complete “y standards,” you’ll get “x amount.”
If you’re a good buyer, you can usually get thousands of dollars to help with your down payment and closing costs.
You should look into all of the DPA programs available in your region and apply to the ones that you believe will be of use to you.
Look up programs online or seek advice from your loan officer, Realtor, or real estate agent.
If you’re lucky, you might get an outright grant (a gift) to cover your down payment and closing costs in full or in part.
Alternatively, you may acquire a loan that only has to be repaid if you move—and even then, it could be forgiven if you stay in the house for a specific period of time.
If you’re approved, the worst case scenario is that you get a low-interest loan that you pay down alongside your mortgage.
However, that is a pretty good “worst-case” scenario.
Gifts from the family
Many parents and grandparents delight in assisting younger members of their families in purchasing homes by providing a monetary present to buy with the down payment.
Lenders are aware of this.
And almost everyone is fine with it.
However, there are certain guidelines to follow in these situations:
It must be a genuine gift, not a debt disguised as a gift.
An official gift letter must be provided by the sender to verify the arrangement.
There must be a clear paper trail demonstrating the transfer of funds from the giver’s account to the recipient’s account.
It doesn’t have to be a parent or grandparent, of course.
It can be any member of your family.
There’s also nothing stopping a friend from making the present.
However, the further apart your relationship is, the more difficult it may be to persuade the lender that everything is in order.
4. Negotiate with the seller or your lender to cover your closing costs.
Closing costs can be costly, ranging from 2% to 5% of the total mortgage amount.
For first-time buyers who have simply saved and budgeted for a down payment, this may come as a shock.
If you’re having difficulties coming up with the funds for closing costs, there are a few inventive options available to you.
Concessions from the seller
Negotiating “seller concessions” is one option.
The seller pays some or all of the buyer’s closing costs under this arrangement.
In exchange, you may have to pay a somewhat higher buying price (which would be covered by your mortgage loan).
In some locations, seller concessions are common.
But don’t get carried away.
Sellers are not obligated to assist you.
And they’re only going to do it if it’s in their own best interests.
These arrangements are most common when a seller is eager to sell and you’re the only potential buyer on the horizon.
Or when your offer is so much better than the others that making a deal makes sense.
There are a few things to keep in mind.
To begin with, the seller makes no payment and instead receives a lower amount at closing.
Second, there is an unwritten rule that this “kickback” is strictly limited to actual closing costs (no cash–back).
Concessions have their own set of rules, which are typically around 3% on low–down–payment loans.
Credits from the lender
Lender credits are when your mortgage company pays for some, all, or none of your closing costs.
Some people will just pay their own fees.
Some people are willing to pay third-party fees, such as appraisal fees.
And some will pay for everything, including property taxes and homeowners’ insurance, which are payable at the time of closing.
Lenders, after all, aren’t in the business of giving away free meals.
You’ll usually pay a higher mortgage interest rate in exchange for lender credits.
And you can bet you’ll end up paying more in the long run than you saved.
If money is tight when you close, though, you could consider it a price worth paying to become a homeowner.
You may also be able to refinance at a reduced rate in the future.
5. Consider purchasing a fixer–upper.
If you watch a lot of HGTV, you might think that buying a cheap fixer–upper and restoring it is simple.
Professionals, too, have issues from time to time.
For amateurs, DIY projects can quickly become overwhelming.
In general, a fixer–upper is a home that is structurally sound but could use some cosmetic work.
Unless you’re an experienced contractor, you’ll almost certainly need to hire someone to do the improvements if you’re a first–time buyer.
And that can be rather costly.
Even so, if you’re lucky with the house and are willing to put in some effort, fixer–uppers might save you a lot of money.
According to Dave Ramsey’s website, you may save an average of $60,000 on the sale price—and even more with a lower down payment and mortgage.
There are reasonable financing alternatives available if you wish to go this route.
The FHA 203k mortgage is an excellent option because it combines your home purchase and renovations into one payment.
Even better, it, like the typical FHA mortgage, has flexible credit and down payment criteria.
6. Buying a foreclosed or short-sale home
There aren’t nearly as many cheap–cost, good–qualifying foreclosure or short–sale properties on the market as there used to be.
However, if you look hard enough, there are still some good offers to be found.
Because the foreclosure or short sale process is a little more involved than traditional house buying, you’ll want to familiarize yourself with the basics before diving in.
You’re still buying from the owner with a short sale.
The bank or mortgage lender has stated that a sale for less than the current mortgage sum will be permitted.
However, it almost never specifies a dollar figure.
So you make an offer to the owner, and the bank mulls over whether or not to approve the transaction.
Then it thinks for a while longer.
And, in many cases, a little more.
Banks have been known to take six months to reply to short sale offers.
And there’s always the possibility that the deal will fall through.
However, if time is your friend and patience is your greatest virtue, you might be able to get a great deal on a short sale.
The property is foreclosed if the home does not sell through a short sale or if the bank chooses to skip this phase.
The lender takes over the property, evicts the people who live there, and usually auctions it off.
The majority of foreclosure auctions involve cash payments.
As a result, you won’t be able to participate unless you have those funds.
Only a few permit mortgages.
However, this will require a lot of planning, and there is a risk that you will be outbid by someone else.
If a house does not sell at auction, it is considered “real estate owned” by the bank.
REOs can be a terrific source of amazing deals.
However, keep in mind that a home’s failure to sell at auction could be due to a variety of factors.
So, once again, prudence is advised, and a professional home inspection is essential.
7. Improve your financial situation before making a purchase.
If you truly want to buy a house for the cheapest price, make sure your finances are in order before applying for a mortgage.
But don’t let “perfect” become a stumbling block to “good.”
If you wait until everything is perfect before buying, you may miss out on the benefits of homeownership over time as you make changes.
Do your best in the year or months running up to your mortgage application to:
Improve your credit score: Even a minor increase in your credit score might result in a significant reduction in your mortgage rate.
Pay off your existing debts—
Paying down credit cards and loans will improve your debt–to–income ratio (DTI), which is a major indicator of mortgage eligibility.
Avoid opening new credit accounts or (contrary to popular belief) closing old ones.
Your grade may suffer as a result of this.
Boost your savings—
A slightly bigger down payment than the minimum could result in a cheaper interest rate.
Lenders prefer to see more “cash reserves,” as they indicate that you are a more dependable homeowner.
Miracles aren’t expected.
However, everything you do now could pay off when it comes time to get mortgage quotes.
You’ll need numerous of those quotes, of course.
Because comparing mortgage rates from several lenders is one of the most effective ways to find the best deal.
You’ll save money both up front and over the loan’s term.
The cheapest way to buy a house: In a nutshell,
So there you have it.
Using those seven tactics, you should be able to become a homeowner sooner and for less money.
Everything can be boiled down to:
Selecting the Most Appropriate Mortgage for Your Needs
Getting as much assistance as possible with the down payment and closing fees
Considering all types of properties: But, unless you’re a pro, avoid fixer–uppers, short sales, and foreclosures.
Working on your finances before applying for a mortgage is a good idea — the sooner you get started, the better.
Before you go house hunting, get a mortgage pre-approval.
This will reveal your “true” price range.
Looking for the best lender is a good idea.
If you follow those steps, you should have a good chance of succeeding.
Rather than looking for “affordable homes,” your first house could be your dream home.