No down payment mortgage for the first time home buyer

Written by Anytime EstimateFebruary 11th, 20225 minute read

You want to buy a house. You have a good job and a high credit score, but you don't have a down payment (or money for closing costs). Can you buy a house without a down payment and no closing cost money? Maybe. All of the popular mortgage programs allow "donors" to give you money for the down payment and closing costs. A close friend or family member with a clearly defined and documented interest in the borrower (i.e. fiancé), or a charitable institution (i.e. church), municipality, or nonprofit organization as a gift are all eligible "donors."

The lender will require extreme documentation showing the money transfer from the donor to the home buyer's bank account. Do not accept cash from a relative or any other acceptable "donor", because the lender is unlikely to recognize the gift money. The money transfer must be made by check or wire transfer and the donor must sign off on a lender-provided "gift letter". If you need gift money for the earnest money deposit, speak to a lender in advance of the purchase to document the earnest money deposit.

If you're not able to find one "donor", try to find multiple donors to meet the down payment and or closing cost requirement. If the parent(s) will pledge 50% of the down payment, ask your brother, sister, aunt, uncle, grandparent(s) to each pledge a portion of the down payment and closing costs. Each donor will be required to sign a separate gift letter and provide bank statements.

Low and no down payment mortgages

  • USDA - "0" down payment
  • Veteran Mortgage - "0" down payment
  • FHA mortgage - 3.5% down payment (can be gifted)
  • Conventional loan

USDA home loan down payment

The USDA home loan program was created by the United States Department of Agriculture to help low to moderate income house buyers in rural, under-served areas in the United States buy homes. The USDA loan does not require a down payment (100% financing) and the seller is permitted to pay a large percentage of the home buyer's closing costs. If the seller refuses to pay the home buyer's closing and escrow costs, all (or part) of the cash requirement for closing can be paid for by a close friend, relative, or a charitable organization (i.e. church), municipality, or nonprofit organization as a gift. The lender provided "gift" letter states that there are no repayment arrangements and that all money transferred to the home buyer is purely a gift to facilitate the purchase of the house.

According to the USDA, the mortgage lender must record that the "gift" money has been moved to the borrower's account and provide evidence of the gift funds transfer from the donor's account. A copy of the donor's canceled check or withdrawal slip, as well as the borrower's deposit slip, may be requested by the lender. If the money is not transmitted prior to settlement, the donor may send the closing agent a certified check for the amount of the gift. A copy of the check (or a settlement statement) confirming receipt of the cheque from the donor will be required by the lender.

An unsecured loan from a bank, a family member, or a credit union, as well as a credit card cash advance, are all permitted by the USDA.

A word of caution: DO NOT borrow money from qualified donors without first consulting with a loan officer. The lender must properly record any financial transactions. Read more about USDA Loans

Veteran loan down payment

Since the conclusion of World War II, the VA home loan has been available to assist eligible veterans in purchasing a home. The Veteran's Administration does not demand a down payment, and the seller may pay all closing expenses on the veteran's behalf.

A close friend with a clear and proven interest in the borrower, a family, or a charitable institution (i.e. church), municipality, or nonprofit organization as a gift are all eligible "donors." Read more about VA Loans.

FHA home loan down payment

The Federal Housing Administration (FHA) requires a modest down payment of 3.5% for a single-family home or an FHA-approved condominium. The down payment can be paid by the home buyer or can be paid for by a close friend (with a clearly defined and documented interest in the borrower), relative, or a charitable organization (i.e. church), municipality, or nonprofit organization as a gift. The donors may also pay any and all closing, prepaid, and escrow costs. The mortgage lender will require a gift letter acknowledging the money transfer from the donor/giver to the home buyer. The lender will also require a bank statement from the donor's account acknowledging the source of the gift money and also provide the lender with a withdrawal slip and an updated bank statement certifying the receipt of the gift money.

Conventional loan down payment

The conventional loan is a mortgage that meets the underwriting and lending guidelines of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac). The conventional home loans are (technically) not backed by the Federal government. Fannie and Freddie permit donors to pay for the down payment and closing costs for the home buyer, however, the entire down payment of 20% is required for a no down payment mortgage. Read more about Conventional Loans

Down payment and closing cost assistance programs

Many states, counties, and cities have down payment and closing cost assistance programs. The best way to track down payment and closing cost grant money is to call a HUD Approved housing counseling agency for information on available programs.

The Federal Home Loan Banks provides the grant money to applicants whose household income is at or below 80% of the area median income. See Federal grants for first-time home buyers

Down payment gift tax implications

There is an IRS gift tax. As of 2015, a married couple filing a joint return can gift up to $28,000 to a child or other family member or give up to $14,000 to any one person without incurring the gift tax. The tax is paid by the person donating the money. Consult a tax professional for the tax implications of down payment/closing cost gift tax for complete information

Frequently Asked Questions About No Down Payment Mortgages

Q. How to buy a house with no down payment?
A. Assuming you are not a veteran and your income and/or purchase location do not meet the USDA guidelines, then obtain a monetary gift for the down payment from an eligible donor and apply for an FHA, HomeReady™, or Conventional 97 loan. You should also hunt for a first-time home buyer assistance program through the city, county, or state.

Q. How much is a down payment without PMI?
A. A down payment of 20% is required to avoid the dreaded private mortgage insurance (PMI) charge.

Q. Should I get a loan for a down payment?
A. That's a big no, no. The mortgage rules prohibit borrowing money to be used for the down payment or closing costs. That's one of the reasons, lenders want to review your bank statements. They want to find out if there is a large deposit which could be a loan.

Q. What is the lowest down payment for a conventional loan?
A. The lowest down payment mortgages for a conventional loan are the HomeReady and Conventional 97 programs. Both loans require a 3% minimum down payment.

Q. What is a down payment example?
A. Let's say you're purchasing a home for $100,000 and the down payment is 3.5%, multiply $100,000 by 3.5% and the result is a $3,500 down payment.