The zero-down payment mortgage

Anyone looking to step onto the property ladder with a hefty upfront payment needs to understand how first-time home buyer loans with zero down payment work.

These loans eliminate the need for a traditional down payment, leaving just the standard closing costs to consider. Yet, other alternatives, such as the FHA loan and Conventional 97, allow as little as 3% down.

Additionally, government grants and loans are available to offset these initial costs. That makes it possible to buy a home with no money down, or very little money down.

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How to buy a house with no money down

The easiest way to buy a house with no money down is to use a government-backed mortgage. There are quite a few first-time home buyer loans with zero down available. The VA loan and USDA loan programs, for example, both allow $0 down.

Not everyone will qualify for these programs. USDA loans have geographical and income requirements, while VA loans are exclusively available for military buyers. But that’s OK. You still have other options to explore.

How to buy a house with no money: 

1. Apply for a zero-down VA loan or USDA loan
2. Use government assistance to cover the down payment
3. Ask for a down payment gift from a family member
4. Get the lender to pay your closing costs (lender credits)
5. Get the seller to pay your closing costs (seller concessions)

When combined, these tactics could put you in a new home with minimal cash out of pocket.

Can I buy a house with no money down?

Realistically, most first-time home buyers will need to pay at least a 3% to 3.5% down payment. That’s the minimum for a conventional or FHA loan, which are the most common mortgage types.

While first-time home buyer loans with zero down exist, they’re primarily intended for select groups such as veterans and rural home buyers with moderate or low incomes. The majority of buyers are more likely to qualify for a low-down-payment mortgage than a zero-down loan.

The good news is that every state offers some type of home buyer assistance. These government grant programs may cover your down payment, so you don’t have to pay out of pocket.

Keep in mind that, as a buyer, you also need to factor in closing costs, and those might cost more than your down payment. But there are several ways you can get all or at least part of your fees covered and avoid paying up front. Talk to your loan officer about options to reduce your out-of-pocket fees.

First-time home buyer loans with zero down payment

The USDA loan program and the VA loan program allow eligible buyers to buy a house with no money. Both are available to first-time home buyers and repeat buyers alike. But they have special requirements to qualify.

USDA loans (0% down)

The U.S. Department of Agriculture offers a 100% financing mortgage. This program is known as the “Rural Housing Loan” or simply the “USDA loan.”

The good news is that the USDA’s definition of rural is broader than you might think. These loans are available to buyers in many suburban neighborhoods as well as rural areas.

The USDA’s goal is to help “low-to-moderate income homebuyers” across most of the U.S., excluding major cities. About 97% of the country’s landmass is eligible under the USDA’s definition.

USDA loan requirements:

• 0% down payment
• Minimum 640 credit score
• Debt-to-income ratio below 41%
• Two-year employment history
• Income below 115% of area median income
• Buy a single-family primary residence
• Buy in an eligible rural area

Another key benefit is that USDA mortgage rates are often lower than rates for comparable low- or no-down-payment mortgages. Financing a home via the USDA can be the lowest-cost path to homeownership.

VA loans (0% down)

The VA loan is a zero-down mortgage available to members of the U.S. military, veterans, and surviving spouses.

VA loans are backed by the U.S. Department of Veterans Affairs. They offer favorable rates and more lenient qualification criteria to borrowers who meet VA mortgage guidelines.

Most veterans, active-duty service members, and honorably discharged service personnel are eligible for the VA program. Home buyers who have spent at least six years in the Reserves or National Guard are also eligible, as are spouses of service members killed in the line of duty.

VA loan requirements: 

• Certificate of Eligibility from the VA
• 0% down payment
• Credit score of 580-620
• Debt-to-income ratio below 41%
• Two-year employment history
• Buy a 1- to 4-unit primary residence

VA loans have no maximum loan amount. It’s often possible to get a VA loan above the current conforming loan limits, as long as you have enough credit and can afford the payments.

In addition, VA loans charge no ongoing private mortgage insurance (PMI). There’s only a one-time funding fee that can be rolled into your loan. That’s a serious benefit. It could lower your monthly payments by a few hundred dollars in some cases.

Finally, VA mortgage rates tend to be the lowest of any home loan program. This is usually the cheapest mortgage option for eligible veterans and service members.

“Doctor loans” for physicians

Doctor loans, sometimes referred to as physician loans, are specifically crafted financial products designed to meet the unique needs of medical professionals.

Recognizing the financial burdens of medical school debt and the eventual high earning potential of doctors, these loans offer more flexible terms and requirements.

Often backed by major financial institutions, doctor loans aim to ease the transition from training to practice, making homeownership more accessible even while you’re still in the early stages of your career.

Doctor loan requirements:

• Must be a medical resident, practicing physician, or fellow
• Credit score is usually 700 or higher, but it is more lenient than conventional loans
• High educational debt is okay if you enroll in a repayment plan
• Employment contracts are often required, especially for new or resident doctors
• A small down payment is generally around 5%, though some offer zero down
• Loans are mainly for primary residences, but some programs allow second homes or investments.

Nurses and other healthcare professionals also have options when it comes to securing a home loan. While they may not qualify for special no-down-payment mortgage loans, they can take advantage of programs offering low down payments.

Additionally, some lenders and nonprofits provide grant money and deferred loans aimed at covering the costs of both the down payment and closing fees.

Nurse home loans offer tailored solutions to make the dream of homeownership more attainable for those in the healthcare field.

First-time home buyer loans with a low down payment

While there are many first-time home buyer loans with zero down, not everyone will qualify for one. But it may still be possible to buy a house without paying money down if you choose a low-down-payment mortgage and use a government grant or loan to cover your upfront costs.

If you want to go this route, here are a few of the best low-money-down mortgages to consider.

Conventional 97 loans (3% down)

A conventional loan is what many home buyers consider the “standard” mortgage. These loans are not government-backed, unlike FHA, VA, or USDA loans. However, they offer flexible guidelines that make it easier for first-time home buyers to qualify.

Contrary to popular belief, you don’t necessarily need a 20% down payment for a conventional loan. In fact, one of the most accessible programs for first-time home buyers is the Conventional 97 loan program, which requires as little as 3% down.

The Conventional 97 loan program is particularly friendly to first-time home buyers. While requirements may vary slightly from lender to lender, these loans generally follow the guidelines set by Fannie Mae and Freddie Mac.

Conventional 97 loan requirements:

• 3% down payment
• Minimum 620 credit score
• Debt-to-income ratio below 43% (in most cases)
• Two-year employment history
• Loan amount within conforming loan limits
• Purchase a 1- to 4-unit property

If you have a low down payment but a solid FICO score, a Conventional 97 loan can often be the best choice.

Strong credit can net you a lower interest rate, and unlike some other programs, you can usually cancel private mortgage insurance (PMI) after a few years. This could potentially save you hundreds of dollars on your monthly mortgage payment.

Fannie Mae HomeReady loans (3% down)

Fannie Mae’s HomeReady program is designed to help home buyers with moderate incomes. This loan program stands out for its flexibility and its commitment to helping more Americans get their foot in the door of homeownership.

One distinguishing feature of the HomeReady program is its consideration for extended household income. This means you can pool resources with family members or even renters to meet income qualifications, expanding your home buying potential.

HomeReady requirements:

• Just 3% down is required
• A minimum credit score of 620 is necessary for qualification
• The program allows for a higher debt-to-income ratio compared to conventional loans
• Borrower’s income should generally be at or below the area median income, although this may vary depending on location
• Completion of an approved home buyer education course is often required

Freddie Mac Home Possible loans (3% down)

Much like Fannie Mae’s HomeReady, the Home Possible loan program from Freddie Mac aims to facilitate homeownership for those who might find it a little more challenging to qualify for a conventional loan. The program is particularly useful for first-time home buyers.

Home Possible offers multiple benefits, including reduced mortgage insurance costs and greater flexibility in the source of your down payment. The program will accept not just personal savings but also employer assistance programs and even gift funds, providing broader opportunities for qualifying applicants.

Home Possible requirements:

• A minimal 3% down payment is needed
• The program typically requires a minimum credit score of 620
• Flexible debt-to-income ratio guidelines, making it easier for borrowers with higher debt levels to qualify
• Borrowers must meet specific income requirements, which are usually based on the area’s median income
• The loan can be used for 1- to 4-unit properties, including condos and planned unit developments

FHA loans (3.5% down)

The FHA loan is a great option for first-time home buyers with lower credit scores. This program is backed by the Federal Housing Administration, and it’s famous for its more relaxed approach to credit scores and down payments.

With an FHA loan, you can put just 3.5% down as long as your credit score is 580 or higher. By contrast, a conventional mortgage requires only 3% down, but you need a FICO score of at least 620 to qualify.

Some buyers who qualify for conventional financing can get a more favorable rate with an FHA loan because FHA doesn’t adjust rates for buyers with lower credit scores.

According to the FHA’s guidelines, you could even get a mortgage with a credit score of 500 to 579, as long as you can put at least 10% down. But in practice, it’s harder to find lenders who will allow FICO scores below 580.

FHA loan requirements: 

• 3.5% down payment
• Minimum 580 credit score
• Debt-to-income ratio below 45% (in most cases)
• Two-year employment history
• Buy a 1- to 4-unit primary residence
• Loan amount within local FHA loan limits

The major downside to an FHA loan is that you have to pay upfront and monthly mortgage insurance premiums (MIP). These are more expensive compared to conventional and USDA mortgage insurance.

But if an FHA loan will put you in a home when other forms of financing won’t, the MIP cost is often worth it. And keep in mind that you can refinance to a less expensive loan later on when your credit improves.

Good Neighbor Next Door loan program

The Good Neighbor Next Door loan program is a unique initiative backed by the U.S. Department of Housing and Urban Development (HUD). It’s specifically designed to benefit first-time home buyers who are also public servants, such as teachers, firefighters, law enforcement officers, and emergency medical technicians. The program enables qualified applicants to purchase homes in designated “revitalization areas” at a significant discount—often as much as 50% off the list price.

What makes this program a standout option for first-time home buyers is the substantially reduced home price, which in turn lowers the amount needed for a down payment. In some cases, the down payment could be as low as $100, making it one of the most affordable paths to homeownership.

Another plus is that buyers can finance the home using various types of loans, such as FHA, VA, or conventional mortgages. This means you’re not locked into a specific type of loan, giving you the flexibility to choose what works best for your financial situation.

However, it’s important to note that this program comes with commitments. You must agree to live in the property as your primary residence for at least 36 months, and, depending on your profession, you may also be required to work within the area where the home is located.

Piggyback loans

Piggyback loans can be a savvy financial strategy for first-time home buyers looking to purchase a home with a low down payment.

Essentially, a piggyback loan involves taking out two separate mortgages simultaneously: One for the majority of the home’s price and a second “piggyback” loan to cover the portion that would typically be your down payment.

The most common structure is the 80-10-10, where the first mortgage covers 80% of the home’s cost, the piggyback loan covers 10%, and the remaining 10% is your down payment.

While piggyback loans have their advantages, they also come with their own set of complexities. Managing two different loans means two sets of terms and two interest rates. It’s essential to have a firm understanding of both loans and ensure that the sum of both payments fits within your budget.

Pros and cons of first-time home buyer loans with zero down

Stepping into the world of homeownership as a first-time home buyer can be both exhilarating and nerve-wracking. One of the biggest dilemmas you may face is whether or not to make a down payment.

With options like first-time home buyer loans with zero down, you don’t have to wait years to save up.

Here’s what you should know about the advantages and pitfalls of opting for a first-time home buyer program with no down payment.

Pros:

• Become a homeowner faster: Say goodbye to the long waiting game of saving for a down payment. You can dive right into the housing market and begin building equity, something that might take years otherwise.
• Financial flexibility: Keeping a down payment in your bank account gives you the leeway to allocate funds for other immediate needs, like furniture, home improvements, or emergency expenses.
• Nonprofit help: Some nonprofit organizations offer grants to first-time home buyers, which can be a significant boon if you’re aiming for zero-down payment.
• Tax incentives: Larger loan amounts can offer more significant mortgage interest deductions if you itemize your taxes, leading to potential tax savings.

Cons:

• Higher monthly payments: With no initial down payment, your monthly mortgage commitment could be steeper than you’d like.

• Higher interest rates: Loans with zero down payments often come with higher interest rates, meaning more money is paid out over the loan’s life.
• Income and household limits: Programs, particularly those affiliated with HUD, often come with income limits, which might restrict your eligibility based on your household income.
• Home buyer education: Some first-time home buyer loans with zero down require you to complete a home buyer education course, adding an extra step to your journey to homeownership.
• Limited initial equity: Jumping into a loan with no down payment means you start with zero equity in your home, making you more vulnerable to market fluctuations.

In a nutshell, while first-time home buyer loans with zero down can offer a fast track to becoming a homeowner, they come with their own set of challenges. Understanding these pros and cons can help you make a decision that aligns well with your financial circumstances and long-term goals.

Best no-down-payment mortgage lenders

Finding the best lenders for first-time home buyer loans with zero down payment

When you’re a first-time home buyer eager to secure a zero-down loan, choosing the right lender becomes paramount. The lender you select will influence not only the rates you’ll pay but also the overall experience you’ll have during the home-buying process.

What to look for in a lender

While large national lenders often advertise competitive rates, smaller local credit unions and community banks should not be dismissed. These institutions frequently offer personalized service and might have more flexible criteria when it comes to credit score requirements and income limits.

• Transparency: A good lender will clearly outline the terms, rates, and fees associated with your loan. This helps you understand the full scope of your financial commitment.
• Credibility: Check for lender certifications and read reviews. A lender’s reputation is a good indicator of the quality of service you can expect.
• Flexibility: Lenders vary in their flexibility regarding credit score requirements, income limits, and loan customization. Find one that aligns with your specific situation.
• Customer service: Excellent customer service can go a long way, especially for a first-time home buyer who may have numerous questions and concerns.

How to compare lenders

When it comes to the nitty-gritty of comparing loan quotes, consider more than just the interest rate. Focus also on the term length of the loan, as this will significantly impact both your monthly payments and the overall repayment amount.

• Interest rates: The lower the interest rate, the less you’ll pay over the loan term. However, remember that zero-down loans may inherently have higher rates due to the lender’s perceived risk.
• Loan terms: 15-year, 20-year, or 30-year? The term of the loan impacts both your monthly payment and the overall cost of the loan.
• Fees and charges: Look beyond the interest rate to other costs such as origination fees, application fees, and any penalties.
• Monthly payments: Make sure you understand what your monthly commitments will be, as this will significantly affect your budget.

Types of lenders known for zero-down home loans for first-time buyers

Lastly, consider specialized lenders who cater to specific needs.

For example, if you’re an American veteran, some lenders specialize in VA loans and can walk you through the specific advantages and stipulations of these no-down-payment options.

Similarly, lenders well-versed in USDA loans can be invaluable if you’re eyeing a rural property.

• VA loan experts: Lenders like Veterans United and Navy Federal are known for specializing in VA loans, offering favorable terms to active-duty service members, veterans, and select family members.
• USDA loan providers: If you’re looking at rural properties, consider lenders like PNC Bank and Fairway Independent Mortgage, who are experienced in USDA loans.
• Online lenders: Platforms like Rocket Mortgage and Lending Tree offer the convenience of online applications and often have lower overhead, which could translate into better terms for you.
• Credit unions and community banks: These institutions often have a vested interest in building local communities and may offer favorable terms to first-time home buyers.

By doing thorough research and comparing multiple loan quotes, you’ll be well-equipped to select the lender that best suits your needs and helps you successfully navigate the landscape of first-time home buyer loans with zero down.

How to get a down payment for a house

Most home buyers have to put at least some money down. But the good news is, the money doesn’t have to solely come out of your pocket. There are multiple ways to source your down payment.

If you’re having trouble saving up for a house, one of these strategies could help you make the minimum down payment needed for a home loan.

Six ways to fund a down payment: 

1. Use your savings
2. Cash out investments
3. Get a cash gift from a family member
4. Apply for a down payment grant
5. Borrow from your 401(k)
6. Buy with a partner or friend

Mortgage lenders are usually happy to accept any of these for a down payment. However, depending on how you pay, specific requirements and documentation might be necessary.

For example, home buyers using gift money for their down payment need to show a gift letter from the donor. And the lender will want to see a clear paper trail indicating the source and timing of deposited funds.

If you’re planning to source a down payment from outside your savings — or if you’re wondering about possible alternatives — talk to your loan officer. They’ll be able to explain your options and fill you in on any additional requirements for the loan process.

Down payment assistance

In addition to first-time home buyer loans with zero down, many first-time home buyers are also eligible for cash assistance offered by state and local governments. These down payment assistance (DPA) programs can help you buy a house if you can’t afford the down payment out of pocket.

Some home buyer assistance programs offer up to 5% or more of the home’s sale price as a grant or loan. Many loans are silent second mortgage loans — loans that never have to be repaid if you remain in the home long enough.

If you’re using a low-down-payment FHA or conventional mortgage, DPA could potentially cover your entire down payment, leaving you with $0 out of pocket.

Keep in mind that you still have to pay upfront closing costs (more info on this below).

DPA programs nationwide

There are more than 2,000 DPA programs nationwide, with assistance available in every state. Each program has its own guidelines, typically requiring you to be a first-time home buyer with a low-to-moderate income.

The amount of money you could get varies by program, too. For instance, one down payment assistance loan in New York City can offer up to $100,000 for eligible buyers, while another in Arkansas may cap assistance at $15,000.

If you’re hoping to qualify for a home-buying grant, the best first step is to contact either your local housing finance authority or a mortgage lender. Either one can tell you about local DPA options and help you find out whether you qualify.

Closing cost assistance

As we mentioned above, your down payment isn’t the only upfront cost when buying a home. Buyers are also responsible for closing costs.

These include loan origination fees charged by the lender along with third-party fees required to set up your home loan (items such as credit report, home appraisal, title search, and underwriting fees).

Usually, closing costs range from 3% to 5% of the loan amount. That’s $15,000 to $25,000 for a $500,000 loan.

Even if you qualify for a no-down-payment mortgage, you still need to get your closing costs covered if you want to buy a house with no money.

Fortunately, there are a variety of ways to get help with your closing costs:

Closing cost assistance

Most down payment assistance programs can be used for closing cost assistance, too. However, the grant or loan you receive likely won’t be enough to fully cover both the down payment and loan fees. Consequently, you may have to pay the remainder out of pocket.

Seller-paid closing costs

It’s possible for a motivated seller to pay your closing costs. The way this often works is that you pay a little more for the home, and the seller kicks back that “extra” cash to cover your fees. You’re essentially rolling the cost into your mortgage loan when you go this route.

You can learn more about how seller concessions work here.

Lender-paid closing costs

Some mortgage lenders offer incentives to home buyers; they might be willing to cover part or all of your closing costs. This can be helpful if you’re short on cash, but be aware that no-closing-cost mortgages usually come with higher interest rates. So you could pay significantly more over the life of the loan.

You can learn more about how lender-paid closing costs work here.

Can I buy a house with no money down and no closing costs?

It may be possible to buy a house with no money down and no closing costs if you qualify for a zero-down loan and get the seller to cover your fees. (For this to work, the seller would need to be very motivated, meaning there’s little competition for the home.)

You could also ask the lender to pay your closing costs. However, lender-paid closing costs typically come with higher interest rates. So while you’ll save money upfront, you could end up paying a lot more over the life of the loan.

Alternatively, if you qualify for down payment assistance, the funds can often be used for closing costs as well. However, most down payment grants aren’t large enough to cover both the down payment and loan fees in full, so expect to pay at least part of your closing costs out of pocket.

FAQ: First-time home buyer loans with zero down

You may already qualify for a first-time home buyer loan with no down payment 

Today’s home buyers have access to a wide range of mortgage programs. With all the low- and no-down-payment loans available, many first-time buyers can get into a house with little or even no money down.

If you’re ready to buy a house but don’t have a lot of cash saved up, ask your mortgage lender about options. Odds are, there’s a home loan that could work for your financial situation.