- Mortgage options like VA loans and USDA loans offer a 0% down payment option for qualified buyers.
- VA loans are reserved for military service members, veterans, and their spouses. USDA loans are reserved for low-to-moderate-income buyers in rural areas.
- Those who don’t qualify for a zero-down mortgage may still be eligible for a low down payment with a conventional loan or FHA loan. Down payment assistance may also be available to these borrowers.
Saving enough money for a down payment is one of the biggest hurdles to buying a house. While it’s no longer necessary to put 20% down, saving a down payment of even 5-10% can be difficult – especially if you’re a first-time homebuyer.
You may have heard about zero-down home loans. But is it really possible to buy a house with no money down?
This article will answer that complicated question. You’ll learn how 0% down mortgages work, the pros and cons of buying a home with no money down, and what it takes to qualify for a no-down-payment home loan.
Can You Buy a House With No Money Down?
There are options for buying a house without making a down payment.[1] However, these options are not available to all homebuyers. Nor do they apply to all properties.
Before exploring these zero-down mortgage options, it’s important to note that even no-money-down home purchases have upfront costs. Regardless of the down payment, homebuyers are responsible for certain closing costs. These costs include expenses like loan origination fees, pre-paid property taxes and insurance premiums, and title search fees. Closing costs vary by market, but they typically total between 2% and 6% of the purchase price.
No-Money-Down Mortgage Options
If you’re looking for a no-down-payment home loan, you have two options: VA loans and USDA loans.
VA Loans
VA loans are backed by the U.S. Department of Veterans Affairs and are available only to military service members, veterans, and their spouses.[2] To apply for a zero-down VA loan, you would need a Certificate of Eligibility (COE) from any branch of the military:[3]
- Air Force
- Army
- Coast Guard
- Marine Corps
- Navy
- Space Force
- National Guard
- Reserve Forces
VA loans can only be used to purchase a primary residence. They cannot be used to purchase vacation homes, second homes, or investment properties. However, buyers can purchase small multi-family buildings with up to four units using VA funding, as long as one of the units is the owner’s primary residence. This provides a unique real estate investment opportunity for those who wish to generate rental income.[4]
Learn more about VA loans.
USDA Loans
USDA loans are a type of specialized loan. Backed by the U.S. Department of Agriculture (or offered directly by the USDA in some cases), these loans are designed to make homeownership more accessible in rural communities.[5]
USDA loans are reserved for low-to-moderate-income buyers looking for homes in eligible rural areas.[6] “Moderate income” means that the household income cannot exceed 115% of the median household income for the area.[7] Towns with a population of fewer than 35,000 residents that are not part of a larger metro area may qualify as eligible rural areas.[5]
USDA loans can only be used to purchase a primary residence. They cannot be used to purchase vacation homes, second homes, or income-producing properties.[7]
Learn more about USDA loans.
Low Down Payment Alternatives
If you cannot qualify for a zero-down mortgage through the VA or USDA, you may still be able to get a mortgage with a low down payment through a conventional loan or FHA loan.
Conventional Loans
Conventional loans are mortgages that are not backed by the government. This is the most common of the different types of mortgage loans.
Well-qualified buyers could pay as little as 3% down with a conventional loan.[8]
Learn more about conventional home mortgage loans.
FHA Loans
FHA loans are backed by the Federal Housing Administration and serve as an alternative for many homebuyers who cannot qualify for a conventional loan.[9]
Well-qualified buyers could pay as little as 3.5% down with an FHA loan.[10]
Learn more about FHA loan.
Down Payment Assistance Programs
If you have concerns about saving enough money to make a down payment, consider a down payment assistance (DPA) program, which could reduce the down payment requirement.
DPAs come in multiple forms, including forgivable second mortgages, deferred-payment second mortgages, and grants.[11]
Learn more about down payment assistance.
Pros and Cons of Buying a House With No Money Down
Before you decide to pursue a zero-down mortgage, consider the following pros and cons.
Benefits of Zero Down Payment
- Increased accessibility to homeownership. Zero-down home loans provide a path for those who don’t have funds for a down payment to buy a home.
- Preserved savings. By not putting money down, buyers can retain their savings for other uses, such as home improvements, emergencies, or investments.
Potential Drawbacks and Risks of Zero Down Payment
- Higher monthly payments. Without a down payment, the mortgage balance is higher, which makes the monthly payments more expensive.
- Higher interest costs. Because the mortgage balance is higher without a down payment, you’ll pay interest on a larger loan amount, which means more money paid toward interest expenses over the life of the loan.
- Mortgage insurance expense. Mortgages with less than 20% down typically require a form of mortgage insurance. For VA loans, this is covered by the VA funding fee, which costs between 1% and 3.3% of the loan amount, depending on a variety of factors.[12] For USDA-guaranteed loans, mortgage insurance is covered by the loan guarantee fee, which costs 1% of the loan amount upfront plus .35% of the loan balance annually.[13]
- Risk of negative equity. If housing prices drop, you might owe more than the home is worth, especially since you start with no equity.
How To Qualify for a No-Down-Payment Mortgage
There are multiple eligibility requirements for zero-down home loans.
Program-Specific Requirements
Each no-down-payment loan program has its own eligibility criteria.
To qualify for a VA loan, borrowers must meet the following requirements:[2]
- Have an active Certificate of Eligibility (COE)
- Submit to a VA appraisal to confirm that the property meets the VA’s Minimum Property Requirements (MPRs)
To qualify for a USDA loan, borrowers must:[5]
- Show that they cannot qualify for a conventional mortgage with a 20% down payment
- Be in good standing on any federal loans (such as federal student loans, for example)
- Prove citizenship or legal residency
- Choose a property located in an eligible rural area
- Show that the property is modest by local standards
- Confirm that the home’s condition meets U.S. Housing and Urban Development (HUD) standards.
- Not exceed income limits for the program.
Income and Credit Requirements
Mortgage lenders can set income and credit score minimums, which can vary by loan type.
For income, lenders consider the borrower's debt-to-income (DTI) ratio. This ratio compares the borrower’s monthly income to their monthly debt expenses to make sure the borrower can afford the mortgage payments.
For credit, lenders generally like to see a credit score of at least 620. Higher credit scores may qualify for favorable terms such as lower down payment offers and lower interest rates.
Employment History and Financial Stability
Employment history shows that a borrower has been steadily employed for some time. This offers some assurance that the borrower has reliable income with which to pay the mortgage for the foreseeable future.
Assets can also be used to show financial stability. For example, savings and investment accounts can factor positively into your eligibility for a zero-down mortgage.
The Bottom Line
Zero-down mortgages, like VA loans and USDA loans, can make homeownership accessible to buyers with limited funds. Putting no money down means higher monthly mortgage payments and may end up costing you more in the long term. However, this is a worthwhile trade-off for many people who don’t want to wait until they can save enough money for a down payment.
Not everyone can qualify for a zero-down home loan. Contact a Mortgage Loan Officer (MLO) to discuss your mortgage options and find out if you can buy a house with no money down.
