Can You Buy a House with No Money Down?

Some Loans Often Require No Down Payment

For many aspiring homeowners, the biggest barrier to buying a home isn't the monthly mortgage payment—it's the upfront costs, such as the down payment. Generally, most buyers will still need to put some amount of money down and/or still pay for closing costs, but buying a home with no money down is possible if you qualify for certain loan programs.

Keep reading to learn about your options and how you can take the first step toward purchasing a home while lessening the upfront costs.

What Is a No-Money-Down Mortgage?

A no-money-down mortgage is a loan that allows you to purchase a property without making a traditional down payment, which is part of the home's purchase price. Most home loans require some down payment (usually anywhere from 3% to 20%), but some borrowers may have options for putting no money down by qualifying for certain loan programs.

There are only two types of loans that allow for a zero-down-payment mortgage: Department of Veterans Affairs (VA) and U. S. Department of Agriculture (USDA) home loans.

VA Home Loan Down Payment

VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA). These loans are designed to help eligible veterans, active-duty service members, National Guard members, reservists, and some surviving spouses to buy or refinance a home. VA loans are provided by private lenders, like banks or private mortgage companies like Freedom Mortgage.

These loans usually don't require a down payment or private mortgage insurance (PMI), a common expense with low- or no-down payment loans. This eliminates the need to save thousands of dollars upfront for those who qualify for this type of loan.

How to qualify for a VA loan:

• You must have a Certificate of Eligibility (COE). This is an official document issued by the VA that proves you meet the service requirements to qualify for a VA home loan. You can apply for a COE online or by mail.
• You must meet minimum service requirements. You may be eligible if you meet at least one of the following:
  • 90 consecutive days of active service during wartime
  • 181 days of active service during peacetime
  • 6 years of honorable service in the National Guard or Reserves
• The home loan can't exceed the home's value. The VA requires an official appraisal of the property to determine the fair market value. The lender will then base your loan amount on either the appraised value or the purchase price of the home, whichever is lower.
• You are an unremarried spouse of a service member who either:
  • Died in the line of duty
  • Died from a service-connected disability

Although VA loans have a no-money down option, most veterans who buy or refinance a home with a VA loan will have to pay a one-time fee called a VA funding fee. This fee helps protect the VA loan program when mortgages default.

USDA Home Loan Down Payment

USDA loans are mortgages backed by the U.S. Department of Agriculture (USDA). These loans are designed to help people buy homes in eligible rural and suburban areas. They're offered to promote homeownership in less densely populated areas and support low- or moderate-income households.

These types of loans don't usually require any down payment and have low interest rates and reduced mortgage insurance costs. This loan has several restrictions, so take a look at the requirements below to see if you qualify.

How to qualify for a USDA loan:

• You must meet income eligibility and credit requirements. Your income must be stable but also not exceed the area's median income by too much. Your credit doesn't need to be perfect, but it should be in the upper 600's.
• You must meet one of the following requirements:
  • Be a U.S. citizen
  • Be a U.S. non-citizen national (born in a U.S. territory)
  • Be a qualified alien (lawful permanent residents, refugees, etc.)
• The home must be in an eligible rural or suburban area. The USDA provides an online property eligibility map tool to check if a home is in an eligible area. Generally, the USDA defines eligible areas as open countryside or town and suburbs with a population under 35,000.
• The home must be used for a primary residence. You cannot qualify for this loan if you intend to use the property as an investment property, a vacation home, second home, or home to be occupied by other family members instead of yourself.

Homebuyer Assistance Programs

Many states and communities have programs that can help make buying a home more affordable. The U.S. Department of Housing and Urban Development (HUD) has information for homebuyers in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. Visit HUD's State Information page, and see if there are programs that apply to you.

Buying a House with No Closing Costs

Closing costs are expenses beyond the down payment, such as appraisals, home inspections, and taxes, that you pay on closing day. Some loans may allow you to add some of your closing costs to your mortgage amount when you buy a home. For example, if you are required to pay the VA funding fee that usually comes with a VA loan, you may be able to add the cost of this fee to your mortgage instead of paying it in cash at closing.

Alternative Loan Options

If you don't qualify for a VA or USDA loan, it's still possible to buy a home with a low- or no-down payment. For example, an FHA loan will allow you to buy a home with a down payment of as little as 3.5% of the purchase price, depending on your credit score. Another option is a conventional loan. While often less expensive in the long run, this loan typically has higher minimum down payments and credit requirements than FHA loans.

'Money Down' Is Just One Part of Home Affordability

Making a down payment and paying for closing costs are just two aspects of the overall affordability of a home. For your home purchase to be sustainable in the long run, there are other things to consider. Home affordability refers to things such as your income, mortgage interest rate, other monthly debt payments, and the cost of property taxes and homeowners' insurance.

Try out our home affordability calculator to get an estimate of how much you can afford on a home.