How To Buy A House With No Money Down

Buying a house with no money down might sound too good to be true, but for some home buyers, it's possible. If you’re considering this option, make sure to look at the overall costs over the life of the loan to determine whether it makes sense for you.

At A Glance: Can You Buy A House With No Money Down?

It’s possible to buy a house with no money upfront, using mortgage products that don't require a down payment. There are a few things to keep in mind, though. For one, you’re still on the hook for closing costs and any moving expenses when you close on the house. You will also likely need to take out a larger mortgage if you don’t furnish a down payment upfront – the down payment is rolled into the total cost of your loan and could lead to a higher monthly mortgage payment. You’ll want to consider your monthly budget before moving forward with this type of loan.

Zero-Down-Payment Mortgages: What You Need To Know

Getting a zero-down-payment mortgage is a popular way for home buyers to purchase a home. Understanding what it is and how it works is key to deciding whether it’s the best choice for you.

What Is A Zero-Down-Payment Mortgage?

A zero-down mortgage is a type of home loan that doesn't require you to put a down payment on the home as part of the qualification criteria. Like other types of mortgages, you will need to meet other eligibility requirements such as having a minimum credit score, not being over a certain debt-to-income ratio, and a certain income threshold.

Interest rates and maximum loan amounts for a zero-down-payment mortgage may be similar or higher than loans that do require down payments. Ultimately, it’s up to the lender how much it’s willing to offer you based on their eligibility requirements.

How Does A Zero-Down Mortgage Work?

A no-down-payment loan doesn’t require a large, upfront down payment. Because of this, the application and underwriting process may be slightly different compared to other mortgages. For instance, U.S. Department of Agriculture (USDA) loans require that you plan on using the home as your primary residence and it’s in an eligible rural area. Some may not have such requirements, but require you to take on mortgage insurance, or private mortgage insurance (PMI). In most cases, you can get rid of PMI after you have a certain amount of equity in your home.

Options For Zero-Down Mortgages

There are a couple options for home buyers who want a zero-down mortgage: a USDA or VA loan.

Department Of Veterans Affairs Loans

The Department of Veteran Affairs backs VA loans and is for active-duty service members and veterans, members of the National Guard and qualifying surviving spouses of deceased veterans. VA loans are popular because loan requirements are less stringent compared to conventional loans, and require no money down. Borrowers also don’t need to pay mortgage insurance. Depending on the lender, there is a minimum credit score requirement. For our friends at Rocket Mortgage^®, the minimum score is 580 for VA loans.

Some loan requirements include:

●      Obtaining a certificate of eligibility (COE) through the VA

●      Having a maximum debt-to-income ratio (DTI) of 41%

●      Sale price of home needs to be at or below its appraised value

●      The home must be your primary residence

●      Pay a one-time VA funding fee, either 2.15% of your home.

U.S. Department Of Agriculture Loans

USDA loans are backed by the United States Department of Agriculture. These loans are designed to help low- and moderate-income home buyers in rural areas afford to purchase a home.

Aside from not having a down payment requirement, USDA loans tend to come with lower fees compared to other mortgage types. Other benefits may include below-market interest rates and a low minimum credit score requirement. You will need to work with a lender that offers these types of loans, as not all do.

The two programs USDA offers that don't have a down payment requirement are the Section 502 direct Loan Program and the Section 502 Guaranteed Loan Program. You'll need to meet the following requirements for either loan:

●      Household income can’t be more than 115% of the median income for the county which you plan on purchasing the home

●      Debt-to-income ratio needs to be less than 45%

●      Credit score needs to be a least 640

●      Need to occupy home as primary residence

●      The home must be in a qualifying rural area

Borrowers will need to pay a loan guarantee fee. While legally this can be up to 3.5% of your loan's principal amount, the fee is periodically reevaluated by the USDA. The current upfront guarantee fee is 1% of the loan amount. There is also an annual fee up to 0.5% of your annual unpaid principal balance for the life of your loan. Again, this is at the discretion of the USDA. The current annual fee is 0.35%, split into monthly increments.

At A Glance: Zero-Down Mortgage Loan Pros And Cons

Low-Down-Payment Mortgages And Credit Programs

Zero-down payment mortgages tend to be more restrictive than other types of home loans. You may have a better chance qualifying for low-down-payment mortgages or credit programs instead.

ONE+ By Rocket Mortgage

This home loan only requires that you put 1% down and Rocket Mortgage will grant up to an additional 2% if you qualify.¹ You will need to meet criteria like income eligibility requirements, purchase a single-family residence as your primary home, and have a minimum score of 620.

Federal Housing Administration Loan

Backed by the Federal Housing Association, FHA loans  offer loans with as little as a 3.5% down payment. Like VA and USDA loans, FHA loans aim to help low- to moderate-income households afford homeownership. It's also a great choice for qualifying first-time home buyers who want a faster path to owning a home. In many cases those with lower credit scores may also qualify for a loan.

Although there are less stringent qualifying requirements, FHA loans require that you pay a mortgage insurance premium (MIP) throughout the life of the loan if you make a down payment of less than 10%. Other requirements include the home needs to be your primary residence, you must move in within 60 days of closing, and the home needs to meet certain livability standards.

Freddie Mac’s Home Possible^® Loan

The Home Possible^® program allows home buyers to secure lower loans with a minimum of 3% down, and at competitive rates. In general, loan requirements (such as minimum credit and income criteria) are less stringent compared to conventional mortgages. However, you need to purchase an eligible property type under this program.

To qualify for this loan option, you have to make 80% or less of the area median income where you're looking to buy. If you make 50% or less of the median income in the area, you qualify for a $2,500 grant under this program.

Fannie Mae’s HomeReady^® Loan

Like the Home Possible^® program, Fannie Mae’s HomeReady^® loans also have a 3% minimum down payment requirement and competitive interest rates. Other benefits include lower PMI, though you’ll need to be sure you meet other eligibility requirements like the minimum score and income threshold. The qualifications for income and grants match those for Home Possible^®.

Freddie Mac’s BorrowSmart^SM Access

The BorrowSmart^SM Access program offers assistance to help you meet the down payment requirements for a mortgage. You can use the funds to cover part of your closing costs as well. Requirements include needing to be a first-time home buyer, being under a certain income threshold and completing pre-purchase counseling.

Conventional Loan

Yes, you can work with your lender to lower your down payment requirements for a conventional loan. You may also be able to score a competitive interest rate depending on your credit and financial profile. Keep in mind that you will need to pay PMI if your down payment is less than 20%.

Purchase Plus

Purchase Plus from Rocket Mortgage is a credit program offering up to $7,000 in credits toward mortgage costs. Borrowers need to be first-time home buyers and must live in certain metropolitan areas to qualify.

Ways To Get Money For A Down Payment

If you decide that a zero-down mortgage isn’t for you, or you want to try to save some form of a down payment just in case, there are several tactics you can try.

Start Saving For A Down Payment

Sometimes, you just need to wait and save until you have enough for a down payment. Some tactics to start saving for a down payment include automating your savings as much as possible, and taking on an extra job.

Get A Gift From Family Or Friends

Family or friends can gift you a down payment. Your lender may ask your donor to write a gift letter to ensure the money isn't a loan, and to ensure there is no need to pay them back.

Find A Down Payment Assistance Program

In addition to the programs mentioned above, consider doing some research for other options such as grants, forgivable loans and deferred-payment loans in your area. Some down payment assistance programs may have certain qualifying requirements, like being below an income threshold and buying a home in a certain area. If you’re working with a lender already, ask whether they accept certain assistance programs.

Ask The Seller Or Lender For Help Paying Closing Costs

You may be able to ask for seller concessions or expenses that your seller can pay or lower in the form of credits to help lower your costs. In a buyers’ market, some sellers may be more willing to do so in order to sell their home. Still, you may be able to work with your real estate agent to see what you can negotiate.

FAQs About How To Buy A Home With No Money Down

Here are some frequently asked questions on how to buy a home with no money down.

What kind of credit score do I need to buy a house with no money down?

Credit score requirements vary among lenders. There may be additional requirements like income thresholds and your home needing to be a primary residence. Check with the loan program you’re interested in to determine minimum requirements.

What are the benefits of putting more money down to buy a house?

Putting more money down when buying a house could mean paying less overall on your home loan. It also means you have more equity in the home to begin with, sometimes allowing you to avoid private mortgage insurance (PMI) on some loans.

Can I use a credit card for a down payment on a house?

No, lenders don’t allow borrowers to use a credit card to pay for a down payment directly on a house.

What if I don’t qualify for a low-money-down loan?

If you don’t qualify for a low-money-down loan, you can either work toward saving more (and holding off your goal of homeownership) or see what you can do differently in a few months to try and meet the qualifying criteria.

Which mortgage allows a person to buy a new home with no money down?

The two most common home loans that don’t require a down payment are USDA and VA loans.

Is it a good idea to put no money down on a house?

That decision is up to you. If you want to be a homeowner faster and are okay with the potential higher costs over time, then it may be fine. However, if you’d rather lower your costs overall, putting money down on a home may be the better bet.

The Bottom Line: You Can Buy A Home With Zero Down, But It Might Cost More

You may be able to qualify to buy a house with little to no money down, but doing so can come with some drawbacks. These include potential higher costs overall, especially in interest costs and mortgage insurance. Be sure to check out all possible options before signing on the dotted line. Ready to start saving for a home? Download the Rocket Money℠ app today to see where you can automate your savings.

¹ Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.