a hook with keys on reflecting concept of buying a house with no money

How To Buy a House With No Money Down

TLDR

What You Need To Know

  • Buying a home with a zero-down or low down payment is possible, but it may carry additional costs
  • Buying a house with no money down can be a smart financial move if done carefully
  • There are many programs out there to help you get a low down payment mortgage if you know what to look for

Contents

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You’ve got buying a home on your mind. Maybe:

  • Everyone you know is becoming a homeowner.
  • Your family is outgrowing your current home.
  • You want your kids to have access to a better school district.
  • You’ve earned a promotion and are ready to say goodbye to your roommates or parents.
  • You’re tired of paying money to a landlord every month and having nothing to show for it.

Whatever the reason, you’re ready to buy a home.

What’s the only thing standing in your way? You can’t afford a down payment.

Putting money down on a house is always preferable – even if it’s less than the standard 20%. But there are ways to buy a house with little to no money down.

We’ll help you understand why lenders want a down payment and what “no money down” really means, the trade-offs and long-term costs of no money down and the programs available to help you buy a home with no money down. Then, you can decide whether purchasing a home with no money down is the right choice for you.

Why Lenders Want a Down Payment

A generation or two ago, the idea of putting less than 20% down on a mortgage would have been seen as a foolish risk by lenders. But those were the days when home prices were lower, first-time home buyers carried less personal debt and you couldn’t search for a home or research mortgage lenders on a cellphone (cuz they didn’t exist!).

Today, a 20% down payment is still preferred. It will likely get you the best mortgage rate and you’ll avoid mortgage insurance (essentially an insurance policy to protect the lender if you don’t make your payments). But in our economic reality, saving for a 20% down payment is challenging because:

  • Home prices are rising faster than incomes
  • Low interest rates mean lower returns on savings accounts and CDs
  • Younger home buyers have growing personal debt and face a lot of income instability

That’s why many mortgages today don’t require 20% down.

If you want to buy a home but can’t afford a down payment, there are options available. But it’s important to understand what it means to buy a home with no money down.

No Money Down Loan: A Definition

Let’s be clear, all home purchases require an upfront financial commitment of some kind. If a lender offers you a mortgage loan and claims that it will cost you nothing, walk away. It’s probably a scam.

Most loans require a down payment of at least 3%. Even if a loan requires 0% down, there are usually conditions and fees that apply.

When lenders talk about a no-money-down loan or a zero-down mortgage, they’re talking about mortgages that require a down payment of 5% or less.

If you’re looking for an actual no-money-down loan, you may be able to find options through regular lenders, but you may also want to look at programs offered in partnership with the federal government.

Next, let’s talk about the real costs of buying a home with no money down.

The Real Cost of Buying a House With No Down Money Down

Getting preapproved for a mortgage is free with many lenders, and you may qualify for a low or even 0% down payment loan. But buying a home still comes with costs. Upfront expenses, like earnest money and closing costs, can cost between 1% – 5% of the home’s purchase price.

A larger down payment could signal to lenders that you are a strong saver and are very “invested” in buying a home. With a smaller down payment, lenders might spend more time scrutinizing your loan and digging into your financials. While the added scrutiny may not cost a dime, it could add time and stress to the mortgage process.

Buying a home with no money down usually comes with higher interest rates and mortgage insurance, which can add hundreds of dollars a month to your monthly mortgage payments.

When Buying a House With No Money Down Is a Good Idea

Even if you put no money down, buying a home is a big commitment. Perform a financial gut-check before you start applying for mortgages. Start by asking yourself these questions:

  • Will I earn enough every month to make my mortgage payments and other expenses?
  • Do I expect my financial situation to improve over time?
  • Can I decrease my non-housing debts over time?
  • Will I live in the home for at least 5 years?
  • Is there a reasonable expectation that home prices will rise or stay the same in the area I’m interested in?

If the answer to any of these questions is no, you may be putting yourself at risk of taking on too much debt or being forced to sell your home at a loss.

If you can answer yes to all of these questions, there may be legitimate benefits to buying a house with no down payment.

Take advantage of low interest rates

While putting more down can save you money on interest rates, if interest rates are at historic lows, getting into a home sooner can save you more in mortgage interest in the long run.

Hold on to your money

If you have some savings, you may want to keep that money available for emergencies, paying off high-interest debt or simply having money on hand to furnish and upgrade your new home.

Buy while prices are low

Sometimes an affordable neighborhood can change overnight. If you sense that a neighborhood is on the brink of change, don’t wait too long before you stake your claim. If you delay, the supply of available homes could shrink. The home you could afford to buy for $200,000 might cost $300,000 a year later.

If you think buying a home with no money down is right for you, you can do it with a little help from Uncle Sam, Fannie, Freddie, your community and even your local lender.

A Brief Guide to Zero and Low Down Payment Mortgages

Now that you understand the benefits and challenges of buying a home with no money down, you’re probably ready to learn more about how you can do it.

The following programs are different loan programs that you may be able to take advantage of. To help you figure out which ones are best for you, we’ve broken them down into:

  • Zero-down mortgage loans (less than 3% down)
  • Low money down mortgage loans (3% – 10% down)

We’ve also provided a brief description of each one and key information, such as:

  • Minimum down payment: It’s the minimum down payment amount required to qualify.
  • Who qualifies: This specifies who is eligible for the loan.
  • Minimum credit score: Most programs require credit scores ranging from 580 – 680.
  • Required mortgage insurance or fees: Is it required, and does it take the form of private mortgage insurance (PMI), mortgage insurance premiums (MIP), an upfront funding fee and/or an annual payment?
  • Income limits/requirements: These are eligibility limits based on current income, employment history or financial history.

Whether these loans are conventional, government-backed or otherwise, all of the programs listed below are offered through mortgage lenders, like banks and online lenders, which means the final terms are offered at their discretion. 

All of these programs are subject to change and can vary depending on the lender and your specific circumstances.

Options for a Zero-Down Mortgage

Here are some loan types that require 0% down:

Department of Veterans Affairs (VA) Loans

If you’re a veteran, active duty service member or surviving spouse, you may be eligible for a 0% down mortgage loan.

VA-backed loans, which are designed to help qualified veterans and service members buy a new home or refinance their current home, are offered by most mortgage lenders.

  • Minimum down payment: 0% down. VA loans may require a funding fee equal to 1.4% – 2.3% of the loan amount the first time you use one and between and 1.4% – 3.6% of the loan amount every time after that. This can be paid upfront or added to the mortgage loan.[1]
  • Who qualifies: Eligible veterans, service members and surviving spouses
  • Minimum credit score: There is no minimum credit score, but most lenders prefer a credit score of 580 or higher.
  • Required mortgage insurance or fees:  Not required
  • Income limits/requirements: Lenders will want a breakdown of your finances, including a review of your debt-to-income (DTI) ratio. DTI is what you owe each month (gross monthly debt) divided by your gross monthly income. For VA loans, the preferred DTI tends to be 38% or lower, though you may be able to qualify with a DTI as high as 60%.[2]

Not sure what your DTI is? Check out our debt-to-income ratio calculator:

Debt-to-Income Calculator

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How much can I afford?

🚨   Above Recommended DTI – Some lenders have different requirements to qualify but it’s worth looking into your credit and finding out what you can afford within your budget.

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🚨   Too Much Debt – Seems like you’ve got a little too much debt to qualify with the income you’ve put in! Do you want to try again?

U.S. Department of Agriculture (USDA) loans

If you want to build, buy, repair or renovate a home outside of the city, the USDA has the mortgage loan for you. 

  • Minimum down payment: 0% down
  • Who qualifies: Home buyers purchasing a home in a designated rural area.
  • Minimum credit score: There is no minimum credit score, but most lenders prefer a credit score of 640 or higher.
  • Required mortgage insurance or fees:  Requires an upfront fee that’s 1% of the loan amount. This can be paid upfront or added to the mortgage loan. An annual fee equal to 0.35% of the loan amount is also required and can be paid in monthly installments.[3]
  • Income limits/requirements: The loans only apply to primary residences, and your income needs to be less than 115% of the median income in the area where you plan on living[4]

Good Neighbor Next Door loans

The Department of Housing and Urban Development (HUD) offers a special loan program that allows eligible teachers, law enforcement officers, firefighters and emergency medical technicians to buy a home for up to 50% off and $100 down.[5]

The homes, which are often located in federally designated “revitalization areas,” must be single-family homes and can be purchased with either a conventional, Federal Housing Administration (FHA) or VA loan.

  • Minimum down payment: $100 (additional mortgage expenses may apply)
  • Who qualifies: Teachers, law enforcement officers, firefighters and EMTs
  • Minimum credit score: 580
  • Required mortgage insurance or fees: Mortgage insurance premium (MIP) may be required.
  • Income limits/requirements: Buyers must keep the home as their primary residence for 3 years.

Physician loan program

New doctors, dentists and veterinarians are often saddled with expensive student loan debt after all their years of training. To help them find a home (and help the lenders secure future customers), many lenders offer physician loans.

These programs offer conventional mortgage loans with low interest rates, low or no down payments and no mortgage insurance requirements.

These loans are often adjustable-rate mortgages, so the interest rates will change periodically over the life of the loan.

  • Minimum down payment: 0% – 10% down (based on lender)
  • Who qualifies: New doctors with an M.D. or D.O. degree. Some lenders offer programs for dentists, orthodontists and veterinarians.
  • Minimum credit score: 680 – 700 preferred (will vary by lender)
  • Required mortgage insurance or fees: Not required
  • Income limits/requirements: None

Options for a Low Money Down Mortgage

If you don’t qualify for a 0% down mortgage, there are loan options that will help you buy a home for as little as 3% down.

Federal Housing Administration (FHA) Loans

FHA loans are government-backed loans that are offered through private lenders. They are targeted to low- and moderate-income home buyers and home buyers with past credit issues.

  • Minimum down payment: 3.5% down[6]
  • Who qualifies: First-time and repeat home buyers with income and credit issues
  • Minimum credit score: 580, or as low as 500 when you put 10% down
  • Required mortgage insurance or fees: Mortgage insurance premium (MIP) is required.[7]
  • Income limits/requirements: Two years’ proof of income required (think: pay stubs, W-2s)

In addition to standard FHA loans, the FHA also offers specialized loan programs:

  • Home Equity Conversion Mortgage (HECM): The loan allows adults who are 62 or older to draw equity from their home.
  • FHA 203(k) Rehabilitation loan: The loan allows home buyers to borrow additional money for home improvements and renovations.
  • FHA energy-efficient mortgage: The loan allows home buyers to borrow additional money to improve energy efficiency in their homes or install solar and wind systems.
  • Section 245(a) loan: The loan, which works best for home buyers who expect their income to increase, offers low initial monthly payments that gradually increase over time.

Fannie Mae HomeReady®

The HomeReady® program helps first-time and repeat home buyers with low-to-moderate incomes buy a home or refinance (aka get a new loan on a property they already own) for as little as 3% down. Fixed-rate and adjustable-rate mortgages are available, and buyers can purchase properties with 1 – 4 units.[8]

  • Minimum down payment: 3% down
  • Who qualifies: First-time and repeat home buyers
  • Minimum credit score: 620
  • Required mortgage insurance or fees: Private mortgage insurance (PMI) is required, but it may be reduced after 90% of the loan is paid off.
  • Income Limits/Requirements: If the borrower or one of the borrowers is a first-time home buyer, there is no income limit. If neither of the borrowers are first-time buyers, they can’t make more than 80% of the area’s median income. Also, at least one of the borrowers may have to take a home buyer education course.

Fannie Mae HomePath®

HomePath® allows home buyers to purchase houses that have been foreclosed or repossessed by Fannie Mae. These houses are sold “as-is” and could require some additional work to help make it feel like home. If you’re willing to invest the time and the money, you can get a great deal for very little down.

  • Minimum down payment: 3% down (and up to 3% back in closing cost assistance)[9]
  • Who qualifies: First-time and repeat home buyers
  • Minimum credit score: 620
  • Required mortgage insurance or fees: Not required
  • Income limits/requirements: Homeownership education course required

Freddie Mac HomeOne®

HomeOne® is designed exclusively for first-time home buyers who are buying a home as a primary residence. These are fixed-rate loans, and they’re only available for 1-unit properties, including condominiums and units in planned unit developments.

  • Minimum down payment: 3% down[10]
  • Who qualifies: First-time buyers
  • Minimum credit score: There is no minimum credit score, but most lenders prefer a credit score of 620.
  • Required mortgage insurance or fees: Private mortgage insurance (PMI) is required until 20% equity (the percentage of the home that you own based on the home’s current value) is reached.
  • Income limits/requirements: None

Freddie Mac Home Possible®

Home Possible® allows both first-time and repeat home buyers to buy a home or refinance their loan to lower their mortgage interest rate with as little as 3% down.[11]

The program has expanded to allow buyers to purchase 1 – 4 units, condos, planned unit developments and manufactured homes with certain restrictions.

Home buyers can buy properties with co-borrowers and buy one non-occupied property they plan on renovating.

  • Minimum down payment: 3% down
  • Who qualifies: First-time and repeat home buyers
  • Minimum credit score: 680
  • Required mortgage insurance or fees: Private mortgage insurance (PMI) is required, but it may be reduced after 90% of the loan is paid off.
  • Income limits/requirements: Borrowers can’t make more than 100% of the area’s median income.

HFA loans

Not to be confused with FHA loans, HFA loans are offered in partnership with Fannie and Freddie and your state’s housing finance agency or authority (HFA). HFAs are state programs that help residents become homeowners through educational programs and loan programs and by providing down payment assistance in the form of loans or grants.

These programs can vary from state to state. What’s available will depend on where you’re looking to buy.

  • Minimum down payment: 3% down with possible down payment assistance[12] [13]
  • Who qualifies: First-time and repeat home buyers
  • Minimum credit score: 620
  • Required mortgage insurance or fees: Private mortgage insurance (PMI) is required, but it may be canceled after you reach 20% home equity.
  • Income limits/requirements: Income limits can vary based on each state’s HFA

80-10-10 piggyback loans

These loans are designed to help home buyers buy a home with as little as 10% down while avoiding mortgage insurance or higher interest rates.

Essentially, the borrower takes out two loans: The first loan equals 80% of the home’s purchase price. The second loan “piggybacks” on the first loan and equals 10% of the home’s price tag. The final “10” in the 80-10-10 structure is the 10% down payment you make.

Splitting the loans can help home buyers in high-cost markets qualify for a mortgage without exceeding the limits that would require them to get a jumbo loan.

  • Minimum down payment: 10% down
  • Who qualifies: Conventional home buyers
  • Minimum credit score: Most lenders prefer a credit score of 680 or higher.
  • Required mortgage insurance or fees: Not required
  • Income limits/requirements: None

Down Payment Assistance Programs

Looking for help with covering your down payment or closing costs? There are state and local government programs, as well as private lenders, that provide home buyers with the money they need to cover all or part of their down payment.

These programs have different eligibility requirements and may require that the borrower takes a home buyer education course.

  • Grants: This is free money you can use toward your down payment.
  • Forgivable loans: These are 0% interest loans you don’t have to pay back if you stay in the home for a specified number of years.
  • Deferred-payment loans: These are 0% interest loans you pay back when you sell, refinance or pay off the mortgage balance on your home.
  • Matched savings programs: These are special savings accounts that are usually sponsored by a government agency or community organization. Borrowers agree to deposit a certain amount into a bank account and the institution agrees to match their savings.

Deciding If Buying a Home With No Money Down Is Right For You

Buying a home with no money down is possible, and it can accelerate your dreams of homeownership. Just make sure that you’ve carefully weighed the pros and cons before you commit. And take the time to learn about the mortgage loan programs that might be available to you.

  1. U.S. Department of Veterans Affairs. “VA Funding Fee And Loan Closing Costs.” Retrieved December 2021 from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/

  2. U.S. Department of Veterans Affairs. “VA Guaranteed Loan.” Retrieved December 2021 from https://www.benefits.va.gov/BENEFITS/factsheets/homeloans/VA_Guaranteed_Home_Loans.pdf

  3. USDA Rural Development. “Reducing Fees Make Home Loans More Affordable | Rural Development.” Retrieved December 2021 from https://www.rd.usda.gov/newsroom/news-release/usda-rural-development-reducing-fees-make-home-loans-more-affordable

  4. USDA Rural Development. “Single Family Home Loan Guarantees – What does this program do?” Retrieved December 2021 from https://www.rd.usda.gov/sites/default/files/fact-sheet/508_RD_FS_RHS_SFHGLP.pdf

  5. U.S. Department of Housing and Urban Development. “Good Neighbor Next Door Program.” Retrieved December 2021 from https://www.hud.gov/program_offices/housing/sfh/reo/goodn/gnndabot

  6. U.S. Department of Housing and Urban Development. “Section C. Borrower Credit Analysis Overview.” Retrieved December 2021 from https://www.hud.gov/sites/documents/4155-1_4_SECC.PDF

  7. U.S. Department of Housing and Urban Development. “APPENDIX 1.0 – MORTGAGE INSURANCE PREMIUMS Upfront Mortgage Insurance Premium (UFMIP) Annual Mortgage Insurance Premium (MIP).” Retrieved December 2021 from https://www.hud.gov/sites/documents/15-01MLATCH.PDF

  8. Fannie Mae. “HomeReady Mortgage.” Retrieved December 2021 from https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage

  9. HomePath® by Fannie Mae. “How Much Can I Borrow?” Retrieved December 2021 from https://www.homepath.fanniemae.com/cfl/homebuyers/how-much-can-i-borrow

  10. Freddie Mac. “HomeOne®.” Retrieved December 2021 from https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-one

  11. Freddie Mac. “Home Possible®.” Retrieved December 2021 from https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-possible

  12. Fannie Mae. “HFAs & Public Entities.” Retrieved December 2021 from https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/hfas-public-entities

  13. Freddie Mac. “HFA Advantage®.” Retrieved December 2021 from https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/hfa-advantage

ICYMI

In Case You Missed It

  1. No home purchase is completely free. Make sure you understand all the costs of home buying. Be ready to cover upfront costs, like earnest money and closing costs

  2. If you’re a teacher, firefighter, police officer or EMT, you could buy a house for $100 down

  3. If you’re a veteran service member or surviving spouse, you may be eligible for a zero-down VA loan, which doesn’t require mortgage insurance

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