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Zero-down mortgage: How to buy a house with no down payment

Yahoo Personal Finance· Getty Images
Jamela Adam
Updated 7 min read

The median sales price of homes in the U.S. has reached over $400,000. So, if you want to take out a conventional loan and make a 20% down payment to avoid private mortgage insurance, you’ll need to put down more than $80,000.

For many Americans, saving tens of thousands of dollars for a down payment can take years. Fortunately, you don’t need a 20% down payment for a mortgage — and you might not need any down payment at all. A zero-down mortgage can help expedite your journey to homeownership.

Read more: The average down payment on a house

In this article:

A zero-down mortgage is exactly what it sounds like: a mortgage loan that requires no down payment. In other words, it allows you to finance 100% of a home’s purchase price. Not everyone qualifies for a zero-down home loan, but for those who do, it’s a great way to become a homeowner without spending years saving just so you can get your foot in the door.

VA loans and USDA loans are two mortgage options that allow you to buy a home without putting any money down.

VA loans are insured by the U.S. Department of Veterans Affairs and are available to eligible active-duty service members, military veterans, past or present members of the National Guard or Reserve, or surviving spouses of deceased veterans. To qualify for a zero-down VA loan, you must have a Certificate of Eligibility from the VA.

While the VA has no minimum credit score requirement, most VA lenders like to see a credit score of at least 620. You’ll also want to keep your debt-to-income ratio (DTI) under 50% to maximize your chances of loan approval.

Read more: The best VA mortgage lenders

A USDA loan is backed by the United States Department of Agriculture and is specifically designed for borrowers with low-to-moderate incomes who want to buy homes in rural areas. Though these home loans don't require a down payment, they’re pretty strict about your household income. This income limit depends on the location of the property and your household size. Check the income limits for the county where you plan to buy your home to see if you’re eligible.

Besides meeting financial requirements like income limits, your home must be located in a rural or suburban area for you to qualify. Check out the USDA’s map of eligible areas to determine if your home is eligible.

The 2024 USDA loan limit in most areas is $398,600, but it can be higher in more expensive counties. For example, the limit is $970,800 in Santa Cruz County, Calif.

Learn more: The best USDA loan lenders

Though zero-down home loans lower the barriers to homeownership, they come with a few downsides that could be deal-breakers. Make sure you’re aware of these pros and cons before making a decision.

  • Buy a house with $0 down: Since the federal government backs USDA and VA loans, they allow lenders to be more lenient with down payment requirements. This means you get to keep more cash on hand.

  • No private mortgage insurance: Zero-down mortgages do not come with private mortgage insurance (PMI), which conventional loans require if you put down less than 20%. PMI can be expensive and add to the cost of homeownership.

  • You can become a homeowner sooner: With the median home price in the U.S. being over $400,000, saving up for a down payment can take years. Zero-down home loans make it possible to buy a home sooner.

  • You’ll pay fees. VA loans come with a funding fee ranging from 1.25% to 3.30% of the amount borrowed, which you’ll pay at closing. USDA loans charge a guarantee fee of 1% of the loan amount at closing, then an annual guarantee fee of 0.35% of the remaining balance.

  • You’ll take on more debt. Financing your home’s entire purchase price means your mortgage balance will be higher. This will lead to higher monthly payments and more interest paid over the life of the loan.

  • You’ll have little to no equity in the home. Without making a down payment, you’re essentially starting with no equity. This can be risky because if the market plummets shortly after you buy the house, your equity could fall below 0% since you didn't have much in the first place. This puts you in the tricky situation of being underwater on your mortgage.

Learn more: How to get a VA funding fee exemption

Zero-down mortgages aren’t your only option when you have little saved for a down payment. Here are some other loan types to consider.

Certain conventional loan programs only require you to come up with a 3% down payment, including the following:

  • Fannie Mae’s HomeReady program. Fannie Mae’s HomeReady mortgage program is a great option for lower-income buyers. To qualify for this 3% down conventional loan, your income cannot exceed 80% of the area’s median income, and your credit score must be at least 620.

  • Conventional 97. This 3% down conventional mortgage backed by Fannie Mae has no income limits and is designed for first-time home buyers.

  • Freddie Mac’s Home Possible® program. Freddie Mac’s Home Possible® program is similar to Fannie Mae’s HomeReady program but requires a credit score of at least 660.

FHA loans are insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). Since the FHA backs them, these types of mortgages are less risky for lenders to issue and, as a result, come with more lenient borrower eligibility criteria.

With an FHA loan, you only need to put 3.5% down if your credit score is 580 or higher. And if your score falls between the 500 to 579 range, you’ll need to put 10% down. However, one downside you should be aware of is that FHA loans come with mortgage insurance premiums (MIPs) that typically last for the life of your loan.

A few mortgage lenders have started offering mortgage loans that only require 1% down. Remember how many conventional loans only require 3% down payments? Well, in this case, you cover 1% of the down payment, and the lender covers the other 2% by giving you a grant.

Each lender will have its own requirements surrounding income limits and credit scores to qualify for these programs. If you’re interested in a 1% down mortgage, check out Guild Mortgage, Rate (previously Guaranteed Rate), and Rocket Mortgage.

Many states and counties offer home buyer incentive programs that provide down payment assistance, low-interest-rate home loans, and more. For example, The Massachusetts Housing Finance Agency, or MassHousing, offers up to $25,000 in down payment assistance to eligible borrowers.

If you’re looking for down payment assistance in Texas, consider the My First Texas Home program. This program provides up to 5% of the mortgage amount in down payment and closing cost assistance.

A zero-down loan can be a great way to help you break into the housing market if you are eligible and have little to no money saved for a down payment.

However, you’ll likely face higher monthly payments and pay more interest over the life of the loan since you’re financing the full purchase price. Plus, starting with no equity can be risky if home values fluctuate. Talk to a financial adviser or mortgage broker who can help you weigh your options and find the best fit for your needs.

VA loans and USDA loans typically do not require down payments.

The USDA doesn’t set a minimum credit score requirement, but most lenders require a score of at least 640. VA lenders also have their own minimum requirements for VA loans, and most require a score of at least 620. However, there are lenders out there that will accept lower scores.

Unfortunately, no. Conventional loans require at least 3% down. If you’re looking for a no-down-payment mortgage, consider USDA or VA loans.

This article was edited by Laura Grace Tarpley.