Any first-time homebuyer in Phoenix can tell you that buying a home is one of the most important financial decisions you’ll ever make. So much so that it makes up for all the stress and planning required to actually buy a home. With that being said, it doesn’t have to end there. If you have a sustainable source of income, you can actually opt to buy your second home.
Now, we understand that you may think this is improbable as you will need to put down a hefty downpayment to purchase your next home. This is expected as lenders take on a huge risk when they release funds to borrowers. However, this isn’t always the case. In fact, it is entirely possible to purchase a second home without putting down a big downpayment (or any downpayment at all).
So how do you go about doing this? Read on as we discuss the different ways to purchase a home without putting down a huge downpayment.
One of the best ways to purchase a second home without a small down payment or no down payment at all comes in the form of government-backed loans. Now, you technically can’t use a government-backed loan for a second home but there is a way around this. You just have to make your second home your primary home.
One government-backed loan you can utilize is the United States Department of Agriculture (USDA) loan. The USDA loan allows you to take out a loan for a home with 0% down payment as long as you meet its eligibility requirements and purchase a property that is USDA-eligible. Land that is considered USDA eligible is often located in rural areas but some can also be found in suburban areas. To help you figure out if this type of loan is right for you, here are the USDA eligibility requirements:
- You must be a U.S. resident.
- You must be able to show proof of stable income.
- Your debt-to-income ratio should be 50% or lower.
- You must have a credit score above 640.
Another great option would be the Federal Housing Administration (FHA) loans. Similar to the USDA loan, you also have to meet certain requirements in order to be eligible for an FHA loan. However, the FHA loan will have you make a small down payment. Here are the eligibility requirements for the FHA loan:
- You must occupy the property within 60 days.
- The home must meet minimum property standards.
- You must make at least a 3.5% down payment.
- You must pay a mortgage insurance premium of the entirety of an FHA loan if you don’t put down at least 10% as a downpayment.
If you don’t want to take out a government-backed loan, you can just assume a mortgage from a home seller. This is a great option if the interest rates have gone up since the seller has bought the home as it ensures that you’re getting a good deal. Take note that you have to check with your lender if this option is viable, as they always have the right to withhold permission and disallow you from assuming a mortgage.
While it is entirely possible to purchase a home without having to put down money for a downpayment, you have to be aware that doing so subjects you to higher monthly payments. This could mean that you eventually may end up paying more than what you would have paid if you had put down a downpayment. Nevertheless, there are situations where the no downpayment route is the best option. Just be sure to make decisions that best fit your current financial situation.
All in all, we hope this article has given you the information you need to make the most informed decision when it comes to buying your second home. As long as you are aware of all the factors that you have to consider, you should have little to no problems when buying your second home without paying a big down payment.
Desert Springs Mortgage is a full-service mortgage company in Phoenix, Arizona. We offer our clients FHA loans, VA loans, asset-based lending, and other financing options. For more information, visit our website or call us at (623) 432-1309!