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Coming up with the funds for a down payment poses a major challenge to many aspiring homeowners, especially younger ones. But two types of home loans make it possible to buy a house with no money down — if you meet certain criteria.
Here’s how you can buy a house with no money down:
- What is a zero-down mortgage?
- Options for a zero-down mortgage
- Pros of a zero-down mortgage
- Cons of a zero-down mortgage
- Low-down-payment loans to consider instead
What is a zero-down mortgage?
A zero-down mortgage is a home loan that does not require any down payment whatsoever. Only two zero-down mortgages exist: VA mortgages and USDA mortgages. Both are backed by a government guarantee that limits the lender’s potential losses.
It’s risky for a lender to extend a loan for 100% of a home’s purchase price without a government guarantee.
If the borrower wants to stop paying the mortgage and move out, whether because they’ve lost their job or the home has declined in value, there’s little stopping them. All they will lose is their credit reputation and whatever equity they’ve accumulated.
Learn More: 5 Types of Mortgage Loans: Which One Is for You?
Options for a zero-down mortgage
Both zero-down home loans are restricted to certain borrowers:
- VA loans are only available to certain military service members and veterans.
- USDA loans can only be used by lower-income borrowers to buy homes in areas with a population below 35,000.
Both VA and USDA require borrowers to pay a funding fee up front to keep the government’s loan guarantee from being a burden on taxpayers.
The funding fee costs less than a down payment, but it doesn’t give you any equity. If you finance the funding fee, you will also have to pay interest on it.
Here’s how some of the basic requirements for these two types of loans compare:
| VA loan | USDA loan | |
|---|---|---|
| Min. credit score | None | None |
| Max debt-to-income ratio | None | 41% |
| Income limit | None | Varies by location and household size |
Learn More: VA Loan vs. Conventional Loan: How to Choose
VA Loans
VA loans are backed by the Department of Veteran Affairs. The service requirements for a VA loan depend on when you served and whether you were called to active duty. If you’re on active duty now, you qualify after 90 continuous days of service.
VA loans don’t have a minimum credit score requirement, and if you don’t have a credit score, you may be able to get approved with nontraditional credit.
However, VA lenders may impose their own credit requirements. Veterans United, for example, requires a minimum score of 640.
VA loans:
- Don’t have a maximum debt-to-income ratio
- Can only be used for primary residences
- Don’t require mortgage insurance
Most borrowers will need to pay a VA funding fee. The fee amount depends on how much you put down and whether it’s your first time using a VA loan.
Keep Reading: How Much Down Payment Do You Need to Buy a House
USDA Loans
Backed by the Department of Agriculture, USDA loans are limited to properties in eligible rural and suburban areas.
USDA loans:
- Are restricted to very low-, low-, and moderate-income households; income limits are based on location and household size
- Don’t require a minimum credit score
- Have a maximum total debt ratio of 41%
Like VA loans, USDA loans charge a funding fee that will cost you 1% of the loan’s amount up front and 0.35% of the average principal balance every year.
- Upfront fee: $1,200
- Approximate annual fee, first year: $420
- Approximate annual fee, second year: $412
- Approximate annual fee, 30th year: $22
Pros of a zero-down mortgage
A zero-down mortgage has several benefits.
- You can buy a house right away. There’s no need to spend months or years saving up for a down payment.
- You’ll have less cash locked up. Even if you can afford a down payment, you might prefer to keep that money in your emergency savings.
- You won’t pay for mortgage insurance. You’ll pay other fees, but they could be less expensive in the long run.
Cons of a zero-down mortgage
Putting nothing down on a home loan also has drawbacks, however.
- You’ll have larger monthly payments. The less you put down, the bigger your monthly payment. That said, if you’re choosing between a zero-down loan and a 3% or 5% down loan, the monthly payment difference will be minimal.
- You won’t have any equity in your home. Not having any equity puts you at greater risk for going underwater on your mortgage. If your mortgage does go underwater, you may have trouble refinancing the loan or selling the home.
- Zero-down loans aren’t without fees. You’ll pay a 2.3% funding fee on a VA loan and a 1% guarantee fee on a USDA loan. The USDA loan also has a 0.35% annual fee.
Low-down-payment loans to consider instead
Borrowers who don’t meet the requirements for a VA or USDA loan still have the option of buying a house for as little as 3% down. There are both conventional and government-backed options for low-down-payment mortgages.
Low-down-payment mortgage options and requirements:
| Loan type | Description | Min. down payment | Min. credit score | Max DTI |
|---|---|---|---|---|
| FHA | Government-insured mortgage for borrowers with low credit scores | 3.5% or 10% (depending on credit score) | 580 with 3.5% down; 500 with 10% down | 50% |
| Fannie Mae 97% LTV Standard | At least one borrower must be a first-time homebuyer | 3% | 620 | 50% |
| Fannie Mae HomeReady | For credit-worthy low-income borrowers | 3% | 620 | 50%1 |
| Freddie Mac Home Possible | Very-low-, low-, and moderate-income borrowers | 3% | 660 | 45%1 |
| 1Maximum income cannot exceed 80% of area median income | ||||
Credible doesn’t offer government-backed loans, but you can use our site to compare prequalified rates for conventional loans from all of our partner lenders. It’s free, and it only takes a few minutes.
FHA Loan
Federal Housing Administration loans can be a good choice for borrowers with lower credit scores and a higher debt-to-income ratio. If you’re looking to put down the lowest possible amount for a down payment — 3.5% — you’ll need a credit score of at least 580.
FHA requirements call for an upfront mortgage insurance premium of 1.75% of the loan amount, as well as ongoing monthly mortgage insurance premiums.
Fannie Mae 97% LTV Standard
First-time homebuyers can put down as little as 3% on a conventional loan through this program. You’ll need a credit score of at least 620, and you’ll have to pay PMI, but you can cancel it once you have 20% equity.
Fannie Mae HomeReady Loan
With as little as 3% down, you can get a Fannie Mae HomeReady loan. You’ll need to complete a housing counseling or homebuyer education program to qualify. Your credit score can be as low as 620.
But if your debt-to-income ratio is higher than 36%, you’ll need a score of at least 720 unless you have six months of cash reserves. The maximum DTI is 45%.
Freddie Mac Home Possible Loan
Another 3% down option for borrowers with low to moderate income is Freddie Mac’s Home Possible mortgage. Freddie Mac doesn’t publish a hard minimum credit score requirement in its lending handbook, but we know that having a score of at least 660 is helpful.
First-time buyers and buyers with nontraditional credit will need to complete a homeownership education program to get this loan.
Credible is a great resource for finding low conventional loan rates. Finding prequalified rates on our platform is fast, free, and has no impact on your credit score — and we’ll never spam you or sell your info.
