In a previous article, we discussed some of the strategies for minimizing your down payment. But what about those borrowers who have little or no money saved for an upfront investment? Here’s an overview of the zero-down-payment mortgage options available to New Jersey home buyers.

Zero-Down Mortgage Loans in New Jersey

If you’re planning to use a mortgage loan to buy a house in New Jersey, there’s a good chance you’ll have to make a down payment of some kind. But there are some programs that offer 100% financing to eligible borrowers. Here are two government mortgage programs allow home buyers in New Jersey to buy with zero down.

• VA loans: Most military members and veterans are eligible for the Department of Veterans Affairs (VA) loan program. This unique program offers 100% financing to qualified borrowers, which means there is often zero down payment required. Borrowers who use VA loans can also avoid mortgage insurance, in many cases.
• USDA loans: The U.S. Department of Agriculture offers home loan options to borrowers in rural areas who meet specific income requirements. This program is primarily geared toward buyers with low to moderate income. It too offers 100% financing to qualified borrowers. But only a small percentage of home buyers in New Jersey qualify for this zero-down mortgage option, due to these restrictions.

Minimum Down Payments in the 3% Range

According to a survey conducted by the National Association of REALTORS®, 87% of first-time buyers thought they would have to put down 10% or more when buying a home. But that’s not accurate. In fact, the average down payment nationwide is closer to 6%, according to recent analyses. And some mortgage programs allow for a down payment in the 3% range.

As we’ve learned, only a relatively small percentage of home buyers in New Jersey can qualify for a truly zero-down-payment mortgage loan. But there’s a much larger segment of borrowers who could potentially qualify for a home loan with a minimum down payment in the 3% to 3.5% range.

These days, many conventional home loans (that are not insured or guaranteed by the government) offer down payments as low as 3%. That’s because Freddie Mac and Fannie Mae — the two government-sponsored corporations that buy loans from lenders — both support mortgage programs with 97% financing.

Additionally, the Federal Housing Administration (FHA) loan program allows borrowers to buy a home in New Jersey with a low down payment equaling 3.5% of the adjusted Value. For purchase loans, HUD defines the “adjusted value” as the “lesser of purchase price less any inducements to purchase; or the Property Value.”

So those are two ways to buy a home in New Jersey with a relatively low down payment. There’s one more thing we need to talk about to close out this topic, and that’s gift money.

Using Gift Money from a Third Party

Many of the mortgage programs available in New Jersey allow for down payment gifts from third parties. That means you, as the home buyer, could use funds provided by a family member or friend to cover some or all of your upfront investment. This is another way to buy a home in New Jersey with zero down payment out of your ownpocket.

Both conventional and FHA loans allow for gift money to be used, though the rules and limits can vary depending on the program.

Regardless of what kind of mortgage loan you are using, a gift letter is usually required in these scenarios. The person donating the funds must write a letter stating that he or she does not expect any kind of repayment.

As you can see, there are quite a few options for borrowers trying to buy a home in New Jersey with little to no money down. While the zero-down-payment mortgage options mentioned above are limited in scope, mortgage loans with a down payment in the 3% – 3.5% range are much more accessible. On top of that, home buyers are often permitted to use gift money from a third party, to help cover their upfront expense.

Have questions? Please contact us if you have questions about the different types of mortgage loans available in New Jersey, including your down payment options.