Key takeaways
- USDA and VA loans offer zero-down payment options for qualified buyers..
- Low-down-payment loans are available if you don’t qualify for zero-down options.
- Using a no-down-payment loan can help you become a homeowner sooner, but they still come with upfront costs.
One of the biggest hurdles to becoming a homeowner is saving enough money for a down payment. While it’s a common myth that you need a 20% down payment, there are loan options that allow for much lower—or even zero—down payments.
Whether you’re looking to buy a home in Portland, OR, or a condo in Nashville, TN, here’s what to know about buying a house with little to no money down, including the loan options available and how to qualify.
Can you buy a house with no money down?
Yes, you can buy a house with no down payment if you qualify for a VA or USDA loan. However, keep in mind that you’ll still need to cover closing costs and other upfront expenses.
Additionally, if you’re a first-time homebuyer, there are programs available to help make buying a home more affordable. A first-time home buyer is usually classified as someone who has never purchased a home before or has not owned a home in the last three years.
How do zero-down mortgage loans work?
A zero-down mortgage loan is a type of loan that doesn’t require you to make a down payment. Instead, you can finance the full purchase price of the home.
Down payments are due during closing, and lenders calculate them as a percentage of the home’s purchase price. With a zero-down mortgage, that upfront percentage is not required.
No-down-payment loans are government-backed loans. That means they’re insured by the federal government, unlike conventional loans that are backed by private institutions like banks. VA and USDA loans are the two primary loan types that offer zero-down payment mortgages.
Loan options for a no-down-payment mortgage
As mentioned above, VA and USDA loans offer no-down-payment mortgages, but they have strict qualifications. Let’s explore their requirements.
VA loans
VA loans are backed by the Department of Veterans Affairs. Active duty service members, veterans, past or current members of the National Guard or Reserve, spouses of deceased veterans, and other beneficiaries who meet eligibility criteria can apply for VA home loans.
What you need to qualify
- Certificate of Eligibility (CoE), which certifies you meet the service requirements. You can apply for one via mail or online.
- Zero-down payment
- A credit score of at least 580 – 620, but this varies by lender.
- Debt-to-income ratio at or below 40%
- One-time funding fee, ranging from 1.25 to 3.3% of the loan amount. It’s only needed if you have a down payment below 5%, as it replaces the need for mortgage insurance.
- Homes must meet VA inspection requirements, called minimum property requirements (MPRs), that make sure a home meets certain structural or safety standards.
USDA loans
Backed by the U.S. Department of Agriculture, USDA loans can be a great option for those living in certain rural or suburban areas. The USDA offers loans that allow for 100 percent financing, meaning borrowers can put zero dollars down and finance the entire purchase price.
What you need to qualify
- Homes must be located in an eligible area. You can use the USDA Eligibility map to see whether your location or home qualifies. Areas not marked in orange are considered rural areas, which account for nearly 97% of the country.
- Zero-down payment
- A credit score of at least 640, but some lenders accept scores between 580 and 620.
- Debt-to-income ratio at or below 40%
- Income must not exceed 115% of the area’s median income. USDA loans are aimed at helping low-to-moderate-income homebuyers purchase a property.
- The home cannot be a working farm; it has to be a primary residence that you live in.
Low down payment loans and alternatives
Not every homebuyer will qualify for a zero-down mortgage. However, there are still loan options and programs that help lower your down payment and make homebuying more affordable.
FHA loans
Backed by the Federal Housing Authority, FHA loans offer down payments as low as 3.5% if your credit score is at least 580. If your credit score is between 500 and 579, your down payment will be 10%.
FHA loans with a lower down payment require mortgage insurance premiums (MIP).
Conventional loans
Conventional loans are backed by private lenders, like banks, not the government. You can make a down payment as low as 3% with a conventional loan. You’ll need to have a credit score of at least 620, with some lenders recommending 700, and a lower DTI.
If your down payment is below 20%, you’ll also need to pay private mortgage insurance (PMI).
Down payment assistance programs
There are plenty of assistance programs aimed at helping buyers purchase a home. The most common types of down payment assistance programs are loans, grants, and credits. Many of these programs cater to first-time homebuyers, but each state, city, and county is unique. Your real estate agent will be able to help you determine which programs you qualify for and whether you’re a first-time homebuyer.
Pros and cons of a zero-down mortgage
As a first-time homebuyer, a zero-down mortgage can make the path to homeownership that much easier. However, there are pros and cons to consider.
Pros of a no-down-payment loan
- Becoming a homeowner faster: You won’t have to spend additional time saving up for a higher down payment.
- Financial flexibility: You can use your savings for other needs or investing.
- Lower credit and income requirements: With VA and USDA loans, your credit and income don’t have to be perfect to become a homeowner.
Cons of a no-down-payment loan
- Higher interest rates: Rates may be higher compared to loans with larger down payments.
- Higher monthly payments: Higher rates and mortgage insurance can increase monthly costs.
- No immediate equity: Without a down payment, you’ll start with minimal equity in the home.
Is buying a house with no money down right for me?
How much you put down on a house varies depending on your finances, goals, and more. When it comes to buying a house with no money down, it also heavily depends on whether you qualify for those loans. Even if you don’t qualify for a zero-down payment mortgage, FHA loans and down payment assistance programs may help you become a homeowner.
FAQs about buying a house with no down payment
What is a down payment?
A down payment is the first payment you make towards your home. For example, a 20% down payment on a $400,000 home is $80,000.
Do I still need to pay closing costs with a zero-down mortgage?
Yes, VA and USDA loans still require you to pay closing costs. You may also qualify for closing cost assistance programs that help reduce the cost you owe.
What credit score do I need for a no-down-payment loan?
VA loans typically require a credit score between 580 and 620, but it depends on the lender. USDA loans usually require at least a 640 credit score, although some lenders may accept lower scores between 580 and 620.
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