For-Sale-by-Owner, or FSBO, transactions are commonly seen in seller's markets or whenever homeowners want to maximize their profits by not having to pay commission.
However, statistics show that selling your home with the assistance of a professional real estate agent will garner you a higher profit, enough to cover the commission as well as put more money in your pocket. According to the National Association of Realtor®'s 2016 Profile of Home Buyers and Sellers, the average FSBO sales price was $185,000, while the average price for a home represented by an agent was $245,000. That's a difference of $60,000!
If you choose to sell your home on your own, you'll be negotiating and relying on your own skill to finalize a contract, leaving yourself open to potential legal problems and a smaller profit when all is said and done.
Here are some of the top reasons why FSBO home sales can go very wrong.
1. Marketing your home online isn't as easy as you thinkBuyers always start online, and FSBO sellers are unlikely to get the exposure they need on a number of listings websites to reach their audience, says Realtor® Wendy Hooper with Coast Realty Services in Newport Beach, CA. Sticking a sign in your yard or trying to pull off some DIY social media marketing hardly has the same effect.
How an agent can help: Using an agent automatically offers widespread exposure for your listing through the multiple listing service. Your real estate agent will also have the means to promote your house to fellow agents to share with their clients. FSBO sellers would have to shell out big bucks for advertising and still might not reach the most important audience.
2. You could price your home wrongThose who put their homes on the market as FSBO tend to set a price based on an online assessment tool or the lofty sum that the neighbor down the street claims they were offered—two methods that are liable to put the listing price way off.
"Using a free online valuation tool is like bringing your doctor a printout of your Google search about symptoms and possible cures,” says Jon Sterling, a real estate consultant with Keller Williams Realty in San Francisco. “There’s no substitute for actual market knowledge.”
The danger in overpricing a home is that it will languish on the market, and buyers will wonder why, even if you lower the price later, says Mark Ferguson, a real estate agent with Pro Realty in Greeley, CO.
"The home becomes stigmatized, and buyers are likely to pay a lower price when the home has been on the market an extended period of time,” Ferguson says.
How an agent can help: A real estate agent will provide an accurate home value based on a comprehensive market analysis to help you arrive at the right listing price. The goal is to make sure you’re pricing your home in the sweet spot—not too high so that you are turning off potential buyers, and not too low so you are leaving money on the table.
3. You could underestimate (or overestimate) how much money to spend on curb appeal“A novice home seller is unlikely to view their home objectively or know how to stage it to appeal to the broadest audience,” says Hooper. That means you might be turning off potential buyers with an amateur paint job, an overgrown yard, or even a broken doorbell.
On the flip side, you might end up investing far more money than is needed. Hooper had sellers who were convinced they had to totally overhaul their 35-year-old kitchen and floors to the tune of about $50,000. Instead, she advised a $10,000 investment for paint, staging, and minor repairs, which still netted $45,000 above their target price.
How an agent can help: Even if you’re not up for a full home makeover, your agent has an eye for detail and can recommend simple, budget-conscious swaps that can translate into real dollars when it comes negotiation time.
“We know how to spend the least amount of money to get the best outcome and home presentation possible,” Hooper says.
4. Showings are a dragFSBO sellers don’t realize how draining it can be to set up showings. And on top of scheduling actual potential buyers, you also have to deal with both looky-loos (gawkers with no intention of buying the house) and “sharks,” (investors looking to flip your house for a profit).
"Sellers who advertise their FSBO will quickly be inundated with calls from real estate investors who are looking to save the same commission the seller hopes to save,” Sterling says. Unfortunately, typically these offers are very low and could likely lead to no sale.
How an agent can help: Your agent will handle all the scheduling and staff the tours for you, so all you have to do is quickly tidy up and vacate.
In fact, that is another key reason to have an agent: Buyers can get uncomfortable with a seller hanging around during the showing, says Ferguson. Agents also will weed out unsuitable offers and collect feedback that potential buyers might be unwilling to share directly with the seller, which can make subsequent showings even stronger.
5. Preparing your own paperwork can be trickyUnless you have a background in contracts or law, you might want to leave the paperwork to the pros. The closing process can entail more than 20 pages of complicated paperwork, including the contract and addendums designed to cover all of the situations that could go wrong, says Ferguson.
For example, houses built before 1978 require an addendum regarding lead-based paint and some states need a release confirming the presence of carbon monoxide detectors.
How an agent can help: Your agent will take care of all property disclosures and corresponding documentation to avoid future liability.
“If the seller does not use an agent and doesn’t know every law and required paperwork specific to their community, they open themselves up to lawsuits,” warns Ferguson.
by Cathie Ericson- a journalist who writes about real estate, finance, and health.
If you're in the market for a mortgage, you probably know that lenders won't just shower you with money when you show up at their office with a smile and a heart-warming story about how you've found the perfect home. Nope, they want to know that if they give you a home loan, odds are good you'll pay them back. And that's where mortgage pre-approval comes in. Here's everything you need to know about this crucial stage and how to ace it without a hitch.
What is mortgage pre-approval, anyway?Mortgage pre-approval is that step in the process where a lender probes deep into your financial past, checking out your income, debts, credit score, and other factors that help it determine whether or not to give you a home loan—and how much money you stand to get. And that helps you set your sights on the right price range for a home.
“You need to know your buying power,” says Ray Rodriguez, New York City regional mortgage sales manager at TD Bank. Indeed, finding out your price range now can save you a lot of time and energy in the future. “It’s emotionally crushing to find a home that you love and not be able to afford to purchase it,” he says.
Pre-approval vs. pre-qualification: What’s the difference?Mortgage pre-qualification entails a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—about your income, assets, debts, and credit—but you don't need to produce any paperwork to back it up. As such, pre-qualification is relatively easy and can be a fast way to get a ballpark figure of what you can afford. But it's by no means a guarantee that you'll actually get approved for the loan when you go to buy a home.
Getting pre-approved, in contrast, is a more in-depth process that involves a lender running a credit check and verifying your income and assets, says Rodriguez. Then an underwriter does a preliminary review of your financial portfolio and, if all goes well, issues a written commitment for financing up to a certain loan amount; this commitment is good for up to 90 or 120 days. So as long as you find your dream house and officially apply for your loan approval in that time period, you're good to go!
Moreover, getting pre-approved is typically free, says Staci Titsworth, regional manager of PNC Mortgage in Pittsburgh. Expect it to take, on average, one to three days for your application to be processed.
Why pre-approval is importantA letter of pre-approval from a mortgage lender is akin to a VIP ticket straight into a home seller's heart. Why? It's proof you are both willing and able to purchase the home. Consequently, many sellers will accept an offer only from a buyer who has been pre-approved, which makes sense given that without pre-approval, there’s basically no guarantee whatsoever that the deal will go through.
What documentation you needTo get pre-approved, you’ll need to provide a mortgage lender with a good amount of paperwork. For the typical home buyer, this includes the following:
Because hard inquiries hurt your credit score, you will want to avoid applying for pre-approval with multiple lenders; otherwise, your score could decline to the point where you get locked out of buying a home. Still, it’s beneficial to meet with several lenders to explore your options conversationally, since some lenders offer more competitive interest rates and better service than others.
By Daniel Bortz
It's easy to fall in love with the idea of buying a home. You've got it all planned out: a five-bedroom home in your favorite neighborhood with a manicured lawn and—why not?—a nice pool.
Well, if you really want to land that dream home, you'd better get started now!
Step 1 is to clean up your credit score, also called a FICO score—a simplified calculation of your history of paying back debts and making regular payments on loans. If you're borrowing money to buy a home (as most do), lenders want to know you'll pay them back in a timely manner, and a credit score is an easy estimate of those odds.
Here's your crash course on this all-important little number, and how to whip it into the best home-buying shape possible
Pull your credit report There are three major U.S. credit bureaus (Experian, Equifax, and TransUnion), and each releases its own credit scores and reports (a more detailed history that's used to determine your score). Their scores should be roughly equivalent, although they do pull from different sources. For example, Experian considers on-time rent payments while TransUnion has detailed information about previous employers.
To access these scores and reports, financial planner Bob Forrest of Mutual of Omaha recommends using AnnualCreditReport.com, where you can get a free copy of your report every 12 months from each credit-reporting company. It doesn't include your credit score, though—you'll have to go to each company for that, and pay a small fee.
Or check with your credit card company: Some, including Discover and Capital One, offer free access to scores and reports, says Michael Chadwick, owner of Chadwick Financial Advisors in Unionville, CT. Once you've got your report, thoroughly review it page by page, particularly the “adverse accounts" section that details late payments and other slip-ups.
Assess where you stand It's simple: The better your credit history, the higher your score—and the better your opportunities for a home loan. The Federal Housing Administration requires a minimum credit score of 580 to permit a 3.5% down payment, and major lenders often require at least 620, if not more. So what can you do if your credit report is in less than shipshape? Don't panic, there are ways to clean it up.
Dispute any errorsA 2013 Federal Trade Commission study found that 5% of credit reports contain errors that can erroneously ding your score. So if you spot any, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines. You'll also need to contact the organization that provided the bad intel, such as a bank or medical provider, and ask it to update the info with the bureau. This may take a while, and you may need documentation to make your case. But once the bad info is removed, you should see a bump in your score.
Erase one-time mistakesSo you've made a late payment or two—who hasn't? Call the company that registered the late payment and ask that it be removed from your record. “If you had an oopsy and missed just a payment or two, most companies will indeed tell their reporting division to remove this from your credit report," says Forrest. Granted, this won't work if you have a history of late payments, but for accidents and small errors, it's an easy boost for your score.
Increase your limits One no-brainer way to increase your credit standing is to simply pay off your debt. Not an option right now? Here's a cool loophole: Ask your credit card companies to increase your credit limit instead. This improves your debt-to-credit ratio, which compares how much you owe to how much you can borrow.
“Having $1,000 of credit card debt is bad if you have a limit of $1,500. It isn't nearly as bad if your limit is $5,000," Forrest says. The simple math: Although you owe the same amount, you're using a much smaller percentage of your available credit, which shines well on your borrowing practices.
Pay on time If you're often late with payments, now's the time to change. Commit to always paying your bills on time; consider signing up for automatic payments so it's guaranteed to get done.
Give yourself time Unfortunately, negative items (such as those habitually late or nonexistent payments) can stay on your report for up to seven years. The good news? Changing your habits makes a big difference in the “payment history" segment of your report, which accounts for 35% of your score. That's why it's essential to start early so that you're sitting pretty once you're shopping for homes and find one that makes you swoon.
Once you've set your credit on a better path, it's time to tackle the next major hurdle: saving for a down payment.
By Jamie Wiebe
Jamie Wiebe writes about home design and real estate for realtor.com. She has previously written for House Beautiful, Elle Decor, Real Simple, Veranda, and more.
There's no denying that buying a home is a costly endeavor—in fact, it's likely the most expensive purchase you'll ever make.
So it makes sense to try to negotiate where you can. Save a few bucks here, get a few things thrown in there, right? We hear ya—we're all about making a smart offer that doesn't leave you house-poor.
But when it comes time to negotiate, there are a few strategies you should avoid, lest you risk offending the seller and losing your shot at your dream home. This is especially true in a red-hot seller's market, where the seller might have a number of tempting offers and is looking for anything that breaks the tie.
Of course, the key to smart negotiating is having the right team in place to advocate for you without alienating the other party. Sellers (and their agents) might be reluctant to deal with you if your agent is perceived as being difficult or—worse—shady, says Cara Ameer, a Realtor® in Ponte Vedra Beach, FL. And if a seller is dealing with multiple offers, that could be enough to get you sent to the bottom of the pile. So find out the word on the street about your agent by talking to people you trust.
And then help your agent help you into a great home by not trying to pull off one of these misguided maneuvers.
1. Making a lowball offerFind homes for sale on
How low can you go? That seems to be the game some buyers play, assuming that if they start really low, they’ll end up getting the house for a song.
Gary Lucido, president of Chicago-area firm Lucid Realty, says that buyer’s agents commonly dissuade their clients from this tactic because they fear it will “insult” the seller. But the problem might be bigger than just hurting someone’s feelings.
“The real issue in starting well below the market value is that it costs you credibility,” he says. “The seller either thinks you don’t know the market or you are looking to take advantage of someone, and in either case, they don’t want to deal with you.”
The bottom line: The seller has a number in mind, and whether you start at $1 or $300,000, it only matters if you can hit the seller’s lowest target selling price.
“You’re not going to lower their target by starting at a lower number,” Lucido says.
2. Asking for a bunch of add-onsYou’ve found a place that's within your budget. What's more, you've fallen in love with the home—and everything in it.
You might be feeling emboldened to ask for more than just the house, but you should resist that temptation, says Ameer. She’s seen buyers who think it’s a good idea to ask for furniture or appliances to be thrown in for free, or expect that the sellers will just leave their patio furniture because it “goes so well” with the house.
Apparently the adage “it doesn't hurt to ask” doesn’t apply in this situation.
“Sellers become totally offended when you keep asking for more, and you risk alienating them,” Ameer says. “Even if they don’t like their patio furniture anymore, they’d typically rather sell it on Craigslist than leave it for a greedy buyer.”
Of course, you can always ask to buy their stuff—in that case, they'd probably be flattered!
3. Using the inspection as a renegotiation toolSo, your offer was accepted, but then you start to get cold feet and you subconsciously (or consciously!) start searching for flaws that you could use as leverage to lower the price.
“Most inspectors are going to find something to recommend—such as adding gutters, improving the drainage, or upgrading all the smoke detectors—but those aren’t repairs that the seller is responsible for,” Ameer says.
If the inspection turns up something major (like a cracked foundation), by all means that should be discussed. But you shouldn’t demand that the sellers fix every minor thing or lower their price.
“You can’t expect a perfect house,” Ameer says. “If you’re constantly nickel-and-diming the seller, they might decide you’re not someone they want to do business with.”
Mind you, the sellers generally can't just back out because they're unhappy, but if both parties are unable to come to an agreement regarding repairs, they can both decide to abandon the deal.
Remember how much you have already invested in the process, in terms of time and money, and be willing to let the little things go.
4. Negotiating with incremental amountsNobody wants to pay more than they have to for a home—why offer $350,000 when you could have it for $325,000? But if you engage in too much back-and-forth, you'll risk alienating the seller. When buyers insist on making incremental counteroffers, they're just giving sellers a chance to move on to the next buyer, says George Theodore, a senior real estate adviser in Miami.
So, for example, if you’re ultimately willing to go up $8,000, don’t make four additional offers of $2,000 each.
“This tactic just tires out both sides and prolongs the transaction since you usually give each party 48 hours to reply," Theodore says. It "actually gets you nowhere tactically or psychologically.”
5. Making a 'one-way offer'Just as the seller has a target price in mind, you probably have a point at which you'll be unwilling to budge. But one of the worst things you can do is advertise this to the seller.
Ameer calls this the "one-way offer," where buyers dig in their heels and state right off the bat, "This is our offer, you have X amount of time to respond, and if you don't take it, we're moving on."
"This just puts the seller on the defensive and usually is a path to a dead-end offer," Ameer says.
It seems like an obvious no-no, right? Well, even in this red-hot seller's market, Ameer has seen buyers push for this tactic despite her warnings—especially if the buyer is offering all cash, or if the property has been on the market for a while. She calls it the "seller-is-lucky-to-have-me syndrome."
"Sometimes buyers have to try this tactic themselves to see how it really ends up before they decide to get with reality," Ameer says.
The galloping real estate market is a scary and exhilarating thing.
On the one hand, as home prices soar, how on earth will you ever buy one? On the other, assuming you do pull off the biggest purchase of your life and become a proud homeowner, those very same rising prices are a promise that one day you, too, will make bank.
And that's exactly why savvy buyers and owners obsess about how much their home will be worth in a few years—and why.
Will a bigger or smaller abode appreciate most in a few years? Are those granite countertops and fancy-shmancy stainless steel appliances really worth splurging on? Or would it be better to add on a patio inspired by Architectural Digest spreads? And if you're planning on selling, down the road, should you pay a premium to live near public transportation—or the top school districts?
Do you get better ROI on a ranch or a Victorian? Two bedrooms or four? Hot tubs or pools?
Yeah, it's enough to make you reach for the anti-anxiety meds. The trick, of course, is to do everything you can to ensure that your home appreciates above market rate—or at very least retains its value. And that's where we at realtor.com® come in.
If the economy is strong, a home's value generally increases 3% to 4% every year, driven by inflation and natural population growth. From 2011 to 2016, the national housing market was recovering from the bubble at a slightly higher speed: 6.3% a year, on average.
To find out what will boost a home's value the most, our data team took a deep dive into millions of listings on realtor.com from 2011 to 2016, and calculated the annual price growth rate of homes with particular features. Admittedly, it’s hard to separate one feature from a home and single it out as the reason for price appreciation. But when we crunched a lot of data and compared one feature with another, we found some useful—and sometimes surprising—patterns.
Ready? Stay calm, we've got you covered! Let's get into the price appreciation game.
Small is so big right nowYou may dream of walk-in closets, a roomy master bedroom, and a three-car garage, but bigger isn't always better. Turns out the smallest homes actually appreciate the fastest: Homes of less than 1,200 square feet have appreciated at 7.5% a year for the past five years. Meanwhile, homes larger than 2,400 square feet only inched up 3.8% a year.
The demand for smaller homes is driven by the two largest and most influential groups of buyers: millennials and baby boomers. Millennials are entering the market hungry for more affordable starter homes, and boomers are seeking to downsize.
This coincides with the trend bringing buyers back into city centers, where every extra inch is a luxury. Today's young buyers are looking for more efficient spaces that are just large enough for their needs. Many would prefer to be close to work, cultural amenities, and fun bars and restaurants.
"[Millennials] believe that they live outside the home—that could mean a coffee shop, bar or restaurant, or a park," says Jason Dorsey, chief strategy officer for the Center for Generational Kinetics, a marketing firm in Austin, TX.
Yet the supply of smaller homes is limited—housing developers still prefer to focus on the high-end market, so they can get more bang for their buck. Furthermore, those who own smaller abodes aren't trading up quickly enough to meet market demand.
"Because the market [for smaller homes] is tighter, prices tend to increase more quickly," says Jonathan Miller, president of the real estate appraisal firm Miller Samuel.
This effect is more pronounced in expensive urban markets like San Francisco and Denver, where homes of under 1,200 square feet see 17% and 12% price growth a year, respectively.
More bedrooms aren't betterIt's not just square footage that drags down a home's appreciation. Multiple bedrooms have fallen out of favor now that Americans are having fewer kids. So what would you do with those extra rooms, anyway?
Homes with five bedrooms appreciate at only 4.3% a year, far lower than the national average of 6.3%. Meanwhile, a cute two-bedroom home appreciates by 6.6%.
So converting a garage into a bedroom probably isn't worthwhile, especially since this is one area where people do want a little more room. Two-car garages are still the gold standard, offering the highest annual growth, at 6.4%. It makes perfect sense, considering that an average American household in 2016 had 1.9 cars, according to Nielsen Pop-Facts® Demographics. A one-car garage comes in next, at 6%, while three-car garages—a luxury amenity—appreciate at just 3.8%.
A flexible open plan, and other featuresIt's one thing to prefer a small home; it's quite another to have a home that feels cramped. How do you make a small space look bigger? Knock down some walls and open it up! Homes with open floor plans appreciate 7.4% a year.
The great thing about an open plan is its flexibility. Party animals of all ages enjoy having a larger space for entertaining. Parents can safely watch their 3-year-old play while preparing a meal in the kitchen area. Older people who have mobility issues find it easier with fewer twisting corridors to navigate.
And to bridge the indoor and outdoor spaces, a patio is also a worthwhile investment. There's nothing like putting in some serious summer relaxation time on your patio or deck—sipping a sweet Pappy Van Winkle Old-Fashioned, or firing up a grill for al fresco gatherings. Homes with a patio appreciate 6.8% a year.
Some HGTV bywords, like stainless steel appliances and granite countertops, have surprisingly little impact on price appreciation—3% and 2.5% respectively. However, homes with those amenities are relatively expensive to begin with, which leaves less room for growth.
As Miller, the appraiser, puts it, "Those are what I call 'have-to-have' features. A home needs to have them in a competitive market. But they don't add long-term value." What's fashionable today doesn't last forever, and "10 years from now, when you update your kitchen, they'll be replaced."
Modernism trumps traditionalismFrom elegant Queen Anne homes to humble cottages, architectural styles often reflect a buyer's personal taste—and budget. We found that the styles resonating with the most people have higher potential for appreciation.
Homes in modern and contemporary styles are building a loyal fan base, especially among young buyers. They are known for their simple, geometric shapes, large windows that fill the space with natural light, and a harmonious blend of interior design with the surrounding landscape. Plus, more recently constructed modern homes tend to be more energy efficient. They appreciate at about 7.7% annually.
Modern architecture is to real estate as Apple products are to personal technology, says George Hale, owner of H. Hudson Homes, a builder based in Portland, OR.
"Not only does it look great, but it works well too," he says. "High ceilings, big windows, lots of light, great space, thought behind design, these are the things that people appreciate today."
"Traditional" generally refers to homes with classic designs like simple roof lines and symmetrical windows, along with a welcoming front porch, and often cozy fireplaces. The style enjoys wide popularity, especially in the South, because it's homey, practical, and often affordable—its median price is $230,000. Homes of this kind appreciate at 5.6% a year.
Niche traditional styles, like Craftsman bungalows and Victorians, may tug at the heartstrings of history buffs, but tend to leave regular buyers unimpressed. The responsibility of maintaining a vintage abode can be huge—you can't just wander into Home Depot and find customized doorknobs. And your favorite IKEA furniture will seem like a horrible mismatch.
The Craftsman style is defined by its low-pitched, gabled roofs, exposed wooden structural elements, and most importantly, hand-crafted woodwork. A Craftsman home isn't cheap to come by—the median price is $336,500—and has not seen rapid growth recently, at only 3.7% a year.
Even worse, Victorian-style homes, famous for their elaborate decorative trim, came out dead last in annual appreciation rates, at a measly 2.2%.
The L-word: locationThe importance of location is a cliche in real estate—because it's true. Homes located in the neighborhoods most in demand really do appreciate faster. After all, you can gut the inside and paint the outside, but it's not so easy to move a nice-looking home out of an inconvenient location.
And the feature that buyers most want to be close to is public transportation. Homes near train stations and bus stops appreciate 8.4% every year. They're usually located in more urban areas and are close to restaurants and shopping too.
Homes within 10 blocks of a subway station sell the fastest in Astoria, in the Queens borough of New York City, says real estate broker Paul Halvatzis of Amorelli Realty in Astoria.
"Buyers want to roll out of bed, walk to the train station, and hop on a train to work within half an hour," he says.
Homes near schools, especially schools with keywords like "top" and "best," also come with an inflated price tag—the median price is $320,000. That's almost one-third more than the typical home. But plenty of parents still envision walking to school with their children in the morning. Homes near the most desirable schools appreciate 7.2% a year.
What's outside that window: green space vs. blue oceanWhether it's snowy mountain peaks or a glassy expanse of blue water, you'll pay a premium for those stunning views outside your windows. But some sights bring more value to your home than others.
The most valuable? Homes with a park view appreciated 7.9% a year.
"[They] hold value over a longer period of time, and they recover quickly from a downturn," says San Francisco Realtor Michael Minson at Kelly Williams, who recently sold a home near Golden Gate Park. "Buyers appreciate the tranquility and outdoor activities. They like being close to nature."
On the other hand, homes with ocean views see little appreciation over time, at just 3.6% a year. That may be because as much as buyers fancy white sand and crashing waves, few have deep enough pockets to pay $699,000 for a home. Recent storms may have scared them off, as well.
Drumming up money for a down payment on a home can feel like a lost cause: After you’ve shelled out money for rent, gas, groceries, and other expenses, you might have little or nothing left over. Which may have you fantasizing: Is there some secret out there, somewhere, that could show you how to buy a home with no money down?
Believe it or not, it’s not just a pipe dream.
First, some background: Home buyers who apply for a mortgage are typically advised to put down at least 20% of the price of the home. With the national median home price hovering around $240,900, that ends up being $48,180. Ouch! Yet an overwhelming 69% of Americans have less than $1,000 in savings, according to a recent survey by GOBankingRates.com. To these people, buying a home may seem woefully out of reach.
But the good news is that there are absolutely legitimate ways to put down much less, or even nothing at all. Here are some options to consider.
In an effort to fill underpopulated areas of the U.S., the U.S. Department of Agriculture’s Rural Development office provides mortgages with down payments as low as 0%. The catch? These loans are offered only in towns with populations of 10,000 or less. Still, 10,000 is quite sizable for most towns, so 97% of the U.S. is covered. So don’t write it off until you check whether the area you’re eyeing (or something nearby) qualifies at USDA.gov.
USDA loans also go to those who qualify as having low or moderate income. But there’s a whole lot of wiggle room in the words “moderate income,” too. In areas near San Francisco (yes, USDA loans are offered there), an individual making $141,000 is considered “moderate income.”
Credit unions—nonprofit banking cooperatives—often offer mortgages to members requiring a low or no down payment. To qualify, you’ll typically need to have a good credit score and earn less than 80% of the area’s median income, but those requirements can really run the gamut.Case in point: Recently, the San Francisco Federal Credit Union offered 100% financing on homes worth up to $2 million to borrowers whose incomes could be as high as $219,000 per year.
The U.S. Department of Veterans Affairs’ loan program, which began with the creation of the GI Bill of 1944, gives active or retired military—or a veteran’s surviving spouse—the opportunity to purchase a home with no money down.
VA loans also offer attractive interest rates, because they’re not based on a borrower’s credit score, says Katie Miller, vice president of mortgage lending at Navy Federal Credit Union. Given these perks, a VA loan is often your best mortgage option--if you qualify.
“Requirements are fairly stringent,” says Miller. VA lenders are typically looking for a credit score of 620, and every VA purchase loan requires a special appraisal, which includes the valuation of the property and a close check of the home’s condition. Consequently, some homes are not eligible, although plenty are—it just means you may have to choose wisely.
Speaking of credit unions and the military, the Navy Federal Credit Union offers 100% financing (read: no money down) to qualified members. Eligibility is restricted to members of the Department of Defense and Coast Guard active-duty, civilian, and contractor personnel and their families. As you might have noticed, a Navy Federal mortgage is almost identical to a VA loan; the main difference is that Navy loans have slightly higher interest rates.
Down Payment Assistance
Depending on your credit score and income, you could qualify for one of over 2,200 down-payment assistance programs nationwide, which help out home buyers with low-interest loans, grants, and tax credits. As Jonathan Smoke, chief economist of realtor.com®, explained, “Consumers do not know about these programs, and those that do assume it’s more difficult to get than it is.”
Granted, you may still need some money for a down payment, but much less than you’d think: Home buyers who use down-payment assistance programs save an average of $5,965 upfront at the down payment stage, and $11,801 in monthly house payments over the life of the loan.
To find down-payment assistance programs, you can search by checking your state on the Department of Housing and Urban Development website or using Bank of America’s recently launched database of local programs.
Bottom line: No one should write off their dreams of homeownership purely because they can’t fathom coming up with a down payment. There’s always hope, so don’t write your options off until you check into them. Who knows? You might end up pleasantly surprised.