Can You Buy a House With No Money Down?
Buying a house with no money down is possible if you’ve served in the military, live in a rural area or work in health care. If you don’t fall into one of those groups, however, you likely won’t have access to an official zero-down loan.
But that doesn’t mean you’re stuck saving up for a 20% down payment. There are low-down-payment mortgage options available to most consumers. You can also avoid paying some or all of your required down payment with the help of a homebuyer assistance program.
No-down-payment mortgage options
With the exception of programs tailored to doctors (more on that below), most true “zero-down” mortgages are part of government-backed loan programs.
VA loans
VA loans are only available to active-duty service members, veterans and eligible surviving spouses. They’re guaranteed by the U.S. Department of Veterans Affairs (VA) and offered by VA-approved lenders as part of your military benefits.
To buy a house with a 0% down VA loan you’ll need:
- Military benefits. A certificate of eligibility (COE) must show that you have enough VA loan entitlement to qualify for zero-down financing.
- A minimum 620 credit score. Technically, the VA asks lenders to look at your entire borrower profile to determine your eligibility. Still, many VA-approved lenders won’t accept scores less than 620.
- A maximum 41% debt-to-income (DTI) ratio. Your total debt divided by your gross income, known as your DTI ratio, shouldn’t exceed 41%. However, your lender may approve a higher DTI ratio with compensating factors like mortgage reserves or a higher credit score.
- A minimum amount of residual income. This requirement, which ensures that you have a set cash amount left over each month after paying your mortgage, is unique to VA loans. Your required amount is based on the home’s location and square footage and your family size.
- A home you’ll occupy as your primary residence. You can’t buy a vacation home or investment property with a VA loan.
Costs and fees to know about
- VA funding fee. Instead of private mortgage insurance (PMI), the VA charges a funding fee, which helps offset the program costs that are passed on to taxpayers. The fee is 2.3% of the loan amount on your first mortgage, and 3.6% if you’re a repeat homebuyer. Some borrowers with service-related disabilities can get a funding fee exemption.
USDA loans
The USDA loan program provides mortgages for low-to-moderate income homebuyers in areas designated as “rural” by the U.S. Department of Agriculture (USDA).
To buy a house with a 0% down USDA loan you’ll need:
- Low or moderate household income. The USDA income eligibility tool allows you to confirm that your household income is within program limits. You can’t earn more than 115% of the median income for your county and state.
- A minimum 640 credit score. The USDA doesn’t set a credit score minimum, but many lenders have a 640 minimum credit score guideline. The USDA does require you to show a track record of handling your credit payments responsibly.
- A maximum 41% DTI ratio. In addition to limiting your total DTI ratio to 41%, your monthly mortgage payment can’t exceed 29% of your income. This limits how big your payment can be in relation to your monthly income and is sometimes known as your “front-end” DTI ratio. Your lender calculates it by dividing your expected mortgage payment by your monthly pretax income.
- A primary residence in a rural area. A home purchased with USDA financing must be your primary residence and within a USDA-approved area. You can check which areas fall into that category on the USDA loan eligibility map.
Costs and fees to know about
Guarantee fees reduce how much money the government gathers from taxpayers to support USDA loan programs. Current USDA fees include:
- A one-time guarantee fee of 1% of the loan amount, which is usually rolled into the total amount you’re borrowing.
- An annual guarantee fee of 0.35% of the loan amount, which is divided by 12 and added to the monthly mortgage payments.
“Doctor loans” for physicians
Some lenders offer no-down-payment programs for medical doctors and other physicians who carry a lot of student loan debt but have high earning potential.
A no-money-down physician loan typically offers:
- Higher loan limits than standard conventional mortgage programs
- More leniency when it comes to debt, since most doctors carry high student loan balances
- Less emphasis on current income, since lenders trust that doctors are usually highly employable and can bring in large salaries
Costs and fees to know about
- No mortgage insurance. Doctor loans don’t usually require mortgage insurance, which can help bring down the annual percentage rate (APR), or total loan costs, of a physician loan.
Pros and cons of buying a house with no money down
It can take more than four years, on average, for an American family to save up for a 20% down payment. Speeding up that journey to homeownership is one of the biggest perks of buying a house with no money down. However, putting no money down also means carrying a larger loan amount, which bumps up your monthly mortgage payment, interest charges and closing costs.
Here’s a breakdown of what else to consider when buying a house with no money down:
| Pros | Cons |
|---|---|
Cash flow: You’ll leave extra money in the bank. Security: You can put more cash into an emergency fund. Preparedness: You’ll have a financial cushion for unexpected home repairs. Tax savings: You’ll have a bigger mortgage interest write-off if you itemize your tax deductions. | Higher debt burden: Your mortgage payment will be higher. Mortgage insurance: You’ll usually have to pay for mortgage insurance. Slower to build home equity: You won’t have any equity at first, and will build it more slowly over time. Closing costs: You’ll pay higher closing costs, since they’re based on your loan amount. |
When is buying a house with no money down a good idea?
A no-down-payment mortgage can be a smart choice if:
→ You can afford the higher monthly payment.
A higher loan amount equals a higher monthly payment, so make sure you leave room in your budget for both regular and unexpected expenses.
→ You don’t plan to sell the home in the near future.
If you end up selling your home soon after taking out a zero-down-payment mortgage, you’ll likely face expensive closing costs and real estate commission fees that require upfront cash.
→ You’ll benefit from owning versus renting.
If you’re tired of paying rent and want your monthly housing payment to go toward a home you own, buying a house with no money down can help you accomplish that goal sooner.
→ You have a plan to pay down the loan faster in the future.
Home equity can be a powerful financial tool over time and the quicker you start building it, the better. Consider biweekly mortgage payments to help knock down your balance faster.
Low-down-payment mortgage options
If you don’t qualify for any of the loans outlined above, your next option is a mortgage with a low down payment.
Fannie Mae HomeReady® loans
You’ll only need a 3% down payment to buy a home through the Fannie Mae HomeReady program. However, there are income limits, so check whether you qualify using the Fannie Mae lookup tool.
To qualify under Fannie Mae HomeReady guidelines you’ll need:
- Credit score minimum: 620
- DTI ratio maximum: 45% with exceptions up to 50% for borrowers with high credit scores or plenty of cash reserves
- Private mortgage insurance: PMI is required, which may be pricey if you have a low credit score
- Occupancy: You must live in the home as your primary residence
Freddie Mac Home Possible® loans
With a 3% down payment, you could get a Freddie Mac Home Possible loan and qualify with the earnings of a co-borrower that doesn’t live in the home. Income limits apply, and the credit score requirements are higher than the Fannie Mae program.
You may qualify for a Freddie Mac Home Possible loan with:
- Credit score minimum: 660 but borrowers with no credit can qualify if they’re willing to make a 5% down payment
- DTI ratio maximum: 43%
- Private mortgage insurance: You’ll have to pay PMI and it can’t be canceled until you reach 20% equity
- Occupancy: You must live in the home as your primary residence
- Education: You’ll have to take a homebuyer education course if all borrowers are first-time homebuyers or if no one has a credit score
Conventional 97% LTV
Also called the Fannie Mae Standard 97% LTV loan, this program only requires a 3% down payment and has no income or neighborhood limitations. It does require that at least one person on the loan be a first-time homebuyer.
To qualify for a conventional 97% loan you need:
-
- Credit score minimum: 620
- DTI ratio maximum: 45%
- Private mortgage insurance: PMI is required and can’t be canceled until you reach 20% equity
- Occupancy: Must be a primary residence
- Education: If everyone on the loan is a first-time homebuyer, at least one person must take a homebuyer education course
FHA loans
Mortgages insured by the Federal Housing Administration (FHA) require a slightly bigger down payment (3.5%), but have more lenient credit score requirements than the other programs in this list. You can borrow up to the maximum FHA loan limit for your area.
FHA borrowers typically qualify with:
- Credit score minimum: 580 with a 3.5% down payment; 500 to 579 with a 10% down payment
- DTI ratio maximum: 43%, although higher DTI ratios may be approved with compensating factors
- Mortgage insurance: An upfront and annual FHA mortgage insurance premium
- Occupancy: Must be a primary residence
Freddie Mac HomeOne®
Unlike with many of the other programs we’ve covered, the Freddie Mac HomeOne program has no income limits and no restrictions on where you can buy. However, at least one person involved in the purchase needs to be a first-time homebuyer.
To qualify under Freddie Mac HomeOne guidelines you’ll need:
- Credit score minimum: 660, but only one borrower is required to have a credit score
- DTI ratio maximum: 45%
- Mortgage insurance: Required if you don’t put down at least 5%
- Occupancy: Must be a primary residence
- Education: Only required if everyone on the mortgage is a first-time homebuyer
Piggyback loans
If you have enough cash to put 10% down, you can try a piggyback loan. This is when you get a home equity loan or home equity line of credit (HELOC) to cover the remaining 10% of your down payment. Since you’ll technically be putting 20% down, you’ll be able to avoid paying for expensive mortgage insurance.
Down payment assistance loans
The U.S. Department of Housing and Urban Development (HUD) provides money to all 50 states to fund down payment assistance programs or DPAs. In some cases, the DPA money may cover 100% of your down payment and closing costs — making your mortgage a “no-money-down loan” in practice, if not in name.
To use a DPA program, you’d typically check with your state or local housing agency to identify the program you’re interested in. From there, you can shop around for a lender that’s approved to offer it. Many of these could be first-time homebuyer programs, but they don’t have to be.
To buy a house using down payment assistance you need to meet:
- Income limits: Down payment assistance programs are set up to help low- to moderate-income borrowers buy homes. Because of this, they’ll usually have income limits.
- Neighborhood restrictions: Some DPA programs focus on qualified census tracts, which means the funds can only be used to purchase homes in targeted neighborhoods.
- Length of ownership requirements: Many DPA programs require you to live in the property for a certain number of years. If you move or sell the home before that period ends, you’ll have to repay some of or all of the money.
- Qualification requirements for a mortgage that’s tied to your DPA program: The DTI and credit score requirements are often more strict than guidelines for a typical conventional or FHA loan. You may need a minimum 640 credit score for most DPA programs.
Frequently asked questions
That depends on your chosen loan program’s requirements. For example, it’s possible to qualify for a zero-down VA loan even with a credit score in the 500s. However, if you want to supplement a conventional loan with down payment assistance, you’ll typically need at least a 620 score.
No down payment is required for the VA, USDA or doctor loan programs detailed above. Even if your loan program does have a minimum down payment requirement, you can use down payment assistance programs to reduce or totally cover it. In many cases, you won’t have to repay DPA program funds you receive.
No. However, you’ll avoid PMI on a conventional loan with a 20% down payment, and borrowing less means your monthly payment will be lower.
All the low-down-payment loan programs outlined above allow for gifts for your down payment, plus closing costs, up to a set limit. You should also check with your employer to see if they offer any homebuying benefits.
Saving for a down payment can feel like a very slow process, but here are some tried and true methods:
- Set up a down payment fund in a high-yield savings account
- Use a savings app
- Set aside tax refunds, bonuses and commission income over time
- Increase your income by getting a side hustle
Mortgage companies typically charge origination fees based on a percentage of your loan amount. For example, a 1% origination fee on a $300,000 loan amount would cost you $3,000. The higher your loan amount, the higher the lender fees.