How to Buy a House When You Have NO MONEY
SHOULD I Be saving MONEY FOR THE DOWN PAYMENT?
I hear people say they want to wait and save up money for a large down payment on their first house. And I get it; after all, a larger down payment means a smaller monthly payment. But in the time it takes you to save that money—likely YEARS, you will be losing out on the equity your home could be making for you. Plus there are tax breaks for owning, and renting means you’re subject to rent hikes, which can be scary. So the answer is NO, you do not need to focus on saving up a ridiculous chunk of money before you can buy a home.
DoN't I need 20% down?
Nope! This thinking comes from the fact that your mortgage lender will require you to pay a “mortgage insurance premium” until you have paid off at least 20% of the home’s value, but there are many options that let you buy for way less than 20%. And that’s a good thing too; today, the median sales price in the Portland Metro Area (as of July 2022) is $635,000! So saving 20% would mean over $120,000!! And then you have additional costs that need to be paid up-front (inspection, appraisal, taxes, loan fees and more).
I don’t know about you, but when my husband and I bought our first home, we had nothing close to $120,000 in savings. So we used an FHA loan which lets you purchase with just a 3.5% down payment. Back then, in 2011, that home only cost $150,000 (so we needed about $5K down) and we even had a tough time coming up with that! While the FHA loan was still a viable option for us then, in today’s market, 3.5% on a $635,000 home is $22,225! We simply would not have been able to buy our first home if we had to come up with that kind of money. Luckily, the FHA loan is not the only option out there. There are multiple options out there to help you pay for your house, even some with NO down payment! They aren’t widely advertised, so it is important to work with an agent and a lender who know about these programs and can help you get the most out of your money.
A true story:
In 2011, the home my then fiancé and I bought was worth $150,000. It was small but it was perfect for us then. But seven years later, after baby #1, we needed more space. So we sold it…for $361,000. After paying off the mortgage and fees we got a $204,000 check! We definitely had not saved $204K on our own in those seven years. The house did it for us! We were able to use a big chunk of that money to purchase a nicer (and bigger!) home that was a better fit for our growing family—a home we would not have been able to afford without using that equity.
The point is that with the options below, you may still not be able to afford your “forever home” today, but becoming an owner—not a renter—can provide massive gains in your wealth and can change the trajectory of your life.
MOVIN' ON UUUP!
Options for those of us who don’t have $120,000 in savings
(Most people have heard of the first two on this list, but it gets pretty exciting after that...so keep reading!)
VA loan: You (or your spouse) have to be a veteran, but if you are, you can qualify for some serious perks including 0% down! Learn more
USDA loan: This is another 0% down program, and this one is for everyone. The catch with the USDA loan though is location. The home you’re buying needs to be in a “rural” area. This does mean outside of Portland, but not necessarily by much. Anything west of Hillsboro falls within the USDA guidelines. (Think Banks, Forest Grove, anything in Columbia County). Check out the USDA’s map to see if you’d be interested in living in any of their qualifying areas.
Oregon Bond: This is offered through the Portland Housing Center, and is only available from specific lenders (like the awesome one I can connect you with). This awesome statewide program gives you two options to bring your costs down:
1) They offer a below market interest rate, which can bring your monthly payment down.
2) They have a “cash grant” which can help pay your up-front closing costs! Both the interest rate and the amount of cash they offer vary from buyer to buyer. Closing costs can range anywhere from 2-6% of your loan amount, and a good estimate of the OB cash grant is about 1.5% of your loan amount. So for a $500,000 loan, this would shave off about $7500 in the cash you would need otherwise!! That’s huge!
Mortgage Assistance Program (or MAP Financing): This program can be used in conjunction with the Oregon Bond or alone. This is basically a secondary loan just for your down payment amount. It allows you to “have the 20% down” needed to eliminate mortgage insurance and effectively gives you 100% financing!
Local “Down Payment Assistance” Programs: I wish I had known about these when I was shopping for my first home because they are a game changer! There are multiple local programs in the Portland Metro Area, but here are examples for two popular cities:
- Beaverton offers a $25,000 grant to first-timers who already live or work in Beaverton when they buy their home there too.
- Gresham offers $40,000 for first-timers buying a home in Gresham! The home price needs to be less than $437,000 so this is a fabulous option when purchasing a townhome or condo.
Savings Match programs: If you do want to wait a while before buying a home, there are programs available that will match your savings contributions. These programs can match your contributions dollar for dollar, or even multiple times more. There are various programs out there, some offered through credit unions, nonprofits like the Portland Housing Center which can match up to 5:1! So for every $1000 you save, they will match you another $5000! These programs generally require you save for a period of 6 months-2 years.
Proud Ground: This is a nonprofit land trust program that helps first-time buyers get a home for cheaper than the market rate. The trust acquires homes that they can sell for as low as half price. If you choose to sell in the future, you must sell it within the trust guidelines, meaning you must sell it for this lower value as well. (You still earn equity though.) The catch with this program is that there can be a lengthy waitlist. If you’re interested in learning more, see https://proudground.org/ for eligibility requirements.
Let's Get Started!
I’ve said it before and I’ll say it again:
It is SO important to talk with a lender EARLY.
Not only will you learn about what programs you specifically qualify for, but a good lender will figure out how to combine programs to help you qualify for the MOST money with the SMALLEST down payment. I know a great lender here in Portland who is partnered with the Portland Housing Center and has access to all the options mentioned above. Reach out to me today so I can connect you and him for a no-obligation phone call. Like me, he loves to share information and would be happy to answer your questions and help you get started.
