Buying a house with no money down is actually more possible than it seems. Many government-backed home loans offer mortgages with no down payment requirement. And even if you don’t qualify for a 0% down mortgage, you may be eligible for other programs that can lower your home purchase costs.
While buying a house with no money down can be a great way to get on the property ladder sooner than later, it also comes with drawbacks, such as higher monthly mortgage payments and insurance requirements. Always explore all your mortgage options and consult with a mortgage and financial professional before committing to buying a house with no money down.
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How to buy a house with no money down
A down payment is expensive, but there are a number of ways to qualify for a mortgage with little or no money down. These options often depend on your unique circumstances, such as if you’re a veteran or a first-time homebuyer. Here are the different scenarios where you may be able to buy a house with little or no down payment.
You're a veteran or active-duty military member.
VA loans are one of the best ways to buy a house with no money down. If you've served in the military or you’re an eligible military spouse, you can buy a home with no down payment, no mortgage insurance, and typically favorable interest rates.
What are the requirements for a VA loan?
| Minimum down payment | 0% |
| Minimum credit score | Varies by lender (typically 620+) |
| Maximum DTI ratio | 41% |
| Income limits | N/A |
| Mortgage insurance | N/A |
To qualify for a VA loan, you must meet one of the following service requirements:
- You served 90 consecutive days during wartime.
- You served 181 consecutive days during peacetime.
- You served in the Reserves or National Guard for six years or more.
- Your spouse lost their life in the line of duty or later due to a service-related disability.
While VA loans are highly attractive, there are some restrictions. The property must be your primary residence — you can't use VA loans on vacation or investment properties. You'll also need to meet the VA residual income requirement, which ensures you have enough money left over after paying your mortgage and other expenses.
You're buying in a rural or eligible suburban area.
USDA loans are another enticing option for homebuyers in eligible rural areas. Don’t be misled by the “rural” designation. Even if you live in a suburban area, you may still qualify under the USDA’s rules. You can search zip codes on the USDA property map to see if the home you’re interested in is eligible.
What are the requirements for a USDA loan?
| Minimum down payment | 0% |
| Minimum credit score for streamlined processing | 640 |
| Maximum DTI ratio | 41% |
| Income limits | Max of 115% of area median income (look up your AMI) |
| Mortgage insurance | Upfront guarantee fee (1% of loan amount) + annual fee (0.50% of remaining principal balance) with no option to cancel |
Your property must be in a qualified rural area to get a USDA loan. The USDA defines a rural area as open country that’s outside metropolitan zones with a population of 35,000 or less, which is a high enough threshold to include many suburban areas.
The home must also be your primary residence. You have to move in within 60 days of closing and live at the address for at least one year.
It also has to meet basic property and HUD standards, such as having adequate water, utilities, and wastewater disposal, as well as direct access to a road or street.
You can afford a second “piggyback” mortgage.
If you have excellent credit but limited savings for a downpayment, you may be able to qualify for a “piggyback” mortgage. These are offered by home loan lenders as a second loan to cover some of your down payment—and all of it in some cases.
For example, APG Federal Credit Union’s 80/20 program takes the form of two mortgages. The first mortgage is worth 80% of the purchase price of the home and the second "piggyback" mortgage is for a 20% down payment, meaning you need no money upfront.
“Piggyback” mortgages are less common than they were prior to 2008 and not all lenders offer them. Here are some other considerations to keep in mind about these second mortgages:
- Two monthly payments: You’ll have to make two mortgage payments each month, sometimes to different lenders.
- Higher overall interest: “Piggyback” mortgages are considered higher risk and come with elevated interest rates.
- No PMI: If your “piggyback” mortgage covers at least 20% of the home price, you won’t have to pay private mortgage insurance (PMI).
- Higher credit score: Lenders typically require higher credit scores to qualify for piggyback loans, often above 680.
- Harder to refinance: Refinancing can be difficult, especially if you already have two lenders. The “piggyback” mortgage provider will have to agree to the refinance, which may be difficult if your home value has gone down.
You’re a first-time home buyer or have moderate credit.
Government-backed FHA loans can be a good choice for first-time home buyers and buyers with moderate credit—you don’t have to be a first-time home buyer to use an FHA loan. With an FHA loan, you can qualify with a downpayment as low as 3.5%, even with a credit score as low as 580.
What are the requirements for an FHA loan?
| Minimum down payment | 3.5% or 10% (for credit scores below 580) |
| Minimum credit score | 580 (500 allowed if you have a down payment of 10% or more) |
| Maximum DTI ratio | 43% |
| Income limits | N/A |
| Mortgage insurance | Up-front fee (1.75% of the loan amount) + annual MIPs (.80%–1.05%); required unless you put down more than 10% at closing |
You’ll also need to meet other requirements for FHA loans, including living in the home for at least a year and staying within FHA loan limits. While FHA loans have lower credit score requirements, you’ll still need to provide proof of your ability to pay back the mortgage, such as a steady employment history.
You’re a low- to moderate-income buyer.
Fannie Mae HomeReady
A Fannie Mae HomeReady Loan is designed for low- to moderate-income buyers with good credit. The down payment requirement can be as low as 3% and the DTI ratio is a bit higher than what conventional loans typically offer.
What are the requirements for the Fannie Mae HomeReady Loan?
| Minimum down payment | 3% |
| Minimum credit score | 620 |
| Maximum DTI ratio | 45% to 50% |
| Income limits | Max of 80% of area median income (look up your AMI) |
| Mortgage insurance | PMI, which can be canceled after loan-to-value ratio reaches 20% |
| Homeownership course | 4-6 hour course |
Freddie Mac Home Possible
Freddie Mac Home Possible is very similar to HomeReady, with the only real difference being that it’s insured by Freddie Mac. Like HomeReady, it’s a 3% down option for low- to moderate-income buyers who have good credit.
What are the requirements for a Home Possible Loan?
| Minimum down payment | 3% |
| Minimum credit score | 660 |
| Maximum DTI ratio | 45% |
| Income limits | Max of 80% of area median income (look up your AMI) |
| Mortgage insurance | PMI, which can be canceled after loan-to-value ratio reaches 20% |
| Homeownership course | 4-6 hour course |
Find state or local down payment assistance
In addition to the nationally available programs listed above, you may also be eligible for state- and local-level down payment assistance programs, such as grants for first-time home buyers. When combined with a low-down-payment mortgage, they can effectively lower your down payment to close to zero.
Down payment assistance comes in several forms, such as:
- Grants: This is essentially free money that you don’t have to pay back.
- Forgivable loans: These are often zero-interest second mortgages that you don’t have to pay back so long as you live in the home for a minimum number of years.
- Deferred-payment loans: These are no- or low-interest loans that you only have to repay once you sell the house, refinance, or pay off the mortgage.
- Repayable second mortgages: These are low-interest loans that can be used as a downpayment, but with repayment spread out over a number of years.
There are thousands of state- and local-level down payment assistance programs. But here are a few examples to give you an idea of how they work:
- Florida: The Florida Assist program provides up to $10,000 in down payment assistance at 0% interest, repayable only when you sell, transfer, refinance, or pay off your first mortgage.
- Alabama: The Alabama Housing Finance Authority’s Step Up program lends up to 4% of the sale price (up to $10,000) as a 10-year second mortgage to be used as a down payment.
- Idaho: The Idaho Housing and Finance Association provides up to 8% of the sale price for down payment and closing costs, allowing participants to contribute as little as $500 of their own money.
To find down payment assistance programs in your area, you can try to following:
- Search "down payment assistance in [your city or state]."
- Check Bank of America's Down Payment Center and filter by state for assistance programs.
- Consult with your mortgage lender about programs they work with.
Other ways to lower your home purchase costs
Use funds from a gift.
You can use gift funds from friends, family, or a charitable organization for your down payment.
You’ll need to submit a gift letter to your lender stating that the money is indeed a gift and not a loan (i.e., you don’t have to pay it back). Each loan program has slightly different definitions of an "eligible donor," so always check the requirements with your lender first.
Tax implications: If your donors give you $16,000 or more, they have to file a gift tax return (IRS Form 709). This is per recipient. If you receive $9,000 and your spouse receives $9,000 from the same donor, a gift tax return isn’t required.
Use a mortgage assumption.
A mortgage assumption allows you to take over a seller's existing mortgage, including their interest rate and loan balance. Usually only FHA, VA, and USDA loans are eligible.
With a mortgage assumption, you don’t need to pay a traditional down payment. However, you will need the funds to cover the difference between the current mortgage balance and your purchase price.
In practice, that difference could be higher than the 3% minimum down payment you’d need with a conventional mortgage. Plus, you’ll still need to meet credit and income requirements with the lender.
However, a mortgage assumption may still be worthwhile since you could lock in a lower interest rate and closing costs are usually capped. Plus, appraisals are typically not required for approval although they are in some cases.
Take advantage of assistance for public servants in revitalization areas.
If you’re a teacher, law enforcement officer, firefighter, EMT, or other public service professional, you may qualify for Good Neighbor Next Door. This is a government-funded program that offers public servants up to 50% of the purchase price to buy homes in distressed areas from the U.S. Department of Housing and Urban Development.
However, you’ll need to live in the home for at least three years. Also, be aware that HUD-owned homes are bought “as-is”, so there is a risk that they could come with serious maintenance issues.
Does buying a house with no money down make sense?
Pros
- You can buy your home sooner and start building equity.
- You can keep your savings for emergencies or repairs.
- You can free up cash to cover closing costs and moving expenses.
Cons
- You’ll make larger monthly mortgage payments
- You’ll have to pay PMI, which is generally 0.19% to 1.86% of your loan annually.
- You may have to pay a higher interest rate.
- You’ll start off with no equity in your home.
Buying a house with no money down can be a good move for people with stable employment and good credit but who haven’t had time to build up their savings. A zero-down-payment mortgage means you can own your home now and start building equity sooner. Otherwise, you may have to spend years paying rent while you build up your down payment.
Plus, buying a house with no money down means you don’t have to deplete your savings entirely on your down payment. Instead, you can keep some for an emergency fund, or spend it on home repairs and closing costs.
But buying a home with no down payment isn’t for everyone, especially if you’re already struggling financially. Your monthly payments will likely be higher and you’ll likely be required to pay for PMI and other fees.
Also, without a down payment you’ll start off with no equity in your home. So, if home values decline, you could quickly end up owing more on your mortgage than what your house is worth. If you need to move quickly, that could mean the resale of your house won’t cover your mortgage balance.
If you’re looking to buy a house sooner rather than later, you should discuss your options with a real estate agent and a trusted mortgage lender. An experienced realtor can advise you about ways to maximize your purchasing power when buying a home, such as negotiating concessions from sellers and uncovering listings that best fit your budget and goals.
💰Buy with a local expert, save money. Clever can connect you with top local realtors from brokerages like Coldwell Banker, Berkshire Hathaway, and more. You’ll get full-service support and can qualify for cash back after closing. Fill out a quick form to get started with Clever.
| Disclaimer: The information provided in this article is for informational purposes only. It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such. Consult a licensed financial advisor or tax professional regarding your personal financial situation before making any decisions. |