How To Buy A House With No Money Down
Victoria Araj9-minute read
April 06, 2023
*As of July 6, 2020, Rocket Mortgage® is no longer accepting USDA loan applications.
Many potential home buyers wonder how much money they’ll need to buy a house and what to save to get a mortgage. But did you know it’s possible to buy a home without needing the upfront funds for a down payment?
Let’s look at some options you have when you want to buy a home without a down payment. We’ll also explore some low down payment alternatives and what you can do if you have a low credit score.
Understanding A Zero-Down Payment Mortgage
As the name suggests, a zero-down mortgage is a home loan you can get without a down payment. A down payment is the first payment you make toward the home, and it’s due when you close on your home loan. Lenders usually calculate your down payment as a percentage of the purchase price on the home.
For example, if you buy a home for $200,000 and you have a 20% down payment, you’ll bring $40,000 to the table at closing. Lenders require a down payment because they believe you’ll be less likely to default on your loan if you have an upfront investment in your home. Down payments are a major hurdle for many home buyers because it can take years to save up a lump sum of cash.
The only way to get a zero-down payment mortgage from major mortgage investors is through a government-backed loan, which is insured by the federal government. In other words, the government (along with your lender) helps foot the bill if you stop paying back your mortgage.
The government offers guaranteed loans to people who need financial assistance when buying a home. This means that government-backed loans are less risky for the lender, and the lender can expand their usual loan offerings to people with riskier financial profiles, such as borrowers with no down payment.
Two types of government-sponsored loans – VA loans and USDA loans – allow you to buy a home without a down payment. Each of the two loans has a very specific set of criteria you must meet to qualify for a zero-down mortgage.
You may want to opt for a government-backed FHA loan or a conventional mortgage if you find out you don’t meet the qualifications for a VA loan or a USDA loan. Both FHA loans and conventional loans will allow you to make a low down payment.
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Options For A No Down Payment Mortgage
Let’s take a look at how you can get a VA loan or a USDA loan, the two loans that allow you to buy a home without a down payment.
You may qualify for a VA loan if you’re an active-duty service member, military veteran, past or present member of the National Guard or Reserve, or the surviving spouse of a deceased veteran. Insured by the Department of Veterans Affairs, a VA loan can be an attractive option if you hope to avoid a down payment on a home purchase. Putting down less than 5% allows you to pay a one-time VA funding fee that’s 2.3% of your loan value and in lieu of mortgage insurance. For any subsequent uses of a VA loan, the funding fee is 3.6%.
To qualify for a VA loan, you’ll need to meet any one of the following service requirements, which in some cases can vary from this based on dates of service:
- 90 consecutive days of active service during wartime
- 181 consecutive days of active service during peacetime
- More than 6 years of service in the National Guard or Reserve, or at least 90 days under Title 32 orders (with at least 30 of those days being consecutive)
- You were discharged by reason of service-connected disability
- You’re the qualifying spouse of a service member who died in the line of duty or from a service-related disability
In addition to service requirements, which you can explore in greater detail here, you’ll need a credit score of at least 580 to get a VA loan from Rocket Mortgage®. Other lenders may have a different credit score requirement.
A USDA loan is a loan backed by the United States Department of Agriculture. Rocket Mortgage doesn’t offer USDA loans at this time. The government offers USDA construction loans and USDA loans to encourage development in rural and suburban areas. You can get a USDA loan with $0 down. USDA loans also have lower fees than other types of loans.
Both you and your home must meet a few criteria to qualify for a USDA loan. First, your home must be in a rural or suburban area. Check out the USDA’s map of eligible areas to find out if your home qualifies. On this map, anywhere outside of an orange zone qualifies as a rural area. In addition, your home can’t be a working farm. It must be a single-family unit, and you must treat the home as your primary residence.
You also need to meet a few financial requirements to qualify. The combined gross income in your household can’t be more than 115% of the median income of the area your home is in. Your debt-to-income ratio shouldn’t be higher than 45%, and you should have a FICO® Score of at least 640 for the best chance of qualification.
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Options For A Low Money Down Mortgage
Don’t qualify for a USDA or a VA loan? You still have a few ways you can buy a home without spending years saving for a down payment. Let’s learn more about low down payment loan options.
Conventional Loans With PMI
Many people believe that if they want to get a conventional loan – any loan not insured by the federal government – they need a 20% down payment. This isn’t actually true, though. Depending on your lender, you may get a loan with as little as 3% down if you’re a first-time home buyer, who is someone who hasn’t owned real estate in the last 3 years. The confusion about the minimum down payment often comes from the private mortgage insurance (PMI) requirement.
Your lender will require you to pay PMI as a condition of your loan if your down payment is less than 20% of the loan amount. PMI gives your lender protection if you quit making loan payments. Although you’re the one paying for it, PMI offers no benefits to you. As a result, most homeowners want to cancel PMI as soon as possible. You can contact your lender and request that they cancel your PMI plan as soon as you reach 20% equity in your home based on payments.
HomeReady® And Home Possible® Loans From Fannie Mae And Freddie Mac
You may also want to consider a HomeReady® mortgage from Fannie Mae or a Home Possible® loan from Freddie Mac if you have a low-to-moderate income compared to others in your area. Both loans allow you to buy a home with a 3% down payment and lower mortgage insurance options. You can’t earn more than 80% of your area’s median income and still qualify. But unlike USDA loans, this stipulation only applies to the parties on the loan, not your entire household.
Freddie Mac BorrowSmartSM
Freddie Mac BorrowSmart is a 3% down payment option, but what makes it unique is that it gives a credit toward the down payment for very low to low-income clients.1 If your income is less than or equal to 50% of the county area median income, you get a grant of up to $2,500. If your income is more than 50% but less than or equal to 80% of the area median, you get a credit of $1,250 toward your down payment.
To qualify, you’ll need a FICO®Score of 620 or better. Debt-to-income ratio requirements can vary but should never be higher than 50%. Also required is homeownership education.
Special-purpose credit programs are targeted to help those in underserved communities have equal access to lending and credit systems in the U.S. This opens up homeownership as an option for building generational wealth to demographics that may have particularly struggled accessing the financial system in the past.
Rocket Mortgage is offering Purchase Plus to those in eligible census tracts within one of six MSAs:
- Atlanta-Sandy Springs-Roswell, Georgia
- Baltimore-Columbia-Towson, Maryland
- Chicago-Naperville-Elgin, Illinois-Indiana-Wisconsin
- Detroit-Warren-Dearborn, Michigan
- Memphis, Tennessee-Mississippi-Arkansas
- Philadelphia-Camden-Wilmington, Pennsylvania-New Jersey-Delaware-Maryland
Those currently residing in eligible census tracts receive a base credit of $5,000. We’ll contribute an additional 1% of your loan amount up to $2,500, for a total of up to $7,500. To get the credit, you must reside in the census tract, but you can purchase anywhere across the country. Here are a few additional qualifications:
- At least one client must be a first-time home buyer.
- You must be purchasing a primary residence.
- You need to have a 3% down payment. The credit counts toward this total.
FHA loans, which you can get with as little as 3.5% down, are backed by the Federal Housing Administration and are loans for people who have low to moderate income. FHA loans carry fewer requirements than USDA and VA loans. For these loans, you must plan to live in the property you’re buying as your primary residence, buy a home that meets livability standards and move in within 60 days of closing.
It’s important to keep in mind that you’ll likely need to make mortgage insurance payments until the loan is paid off if your down payment is under 10%. Some people get an FHA loan, wait until they build 20% equity in their property and then refinance to a conventional loan as a workaround. This eliminates the lifetime mortgage insurance requirement.
FAQs About Getting A Zero-Down Mortgage
Here are some frequently asked questions about buying a house with no money down.
How do I know if a zero-down or low money down loan is right for me?
If you meet the requirements and can qualify for a USDA, VA, FHA, HomeReady® or Home Possible® loan, not having to pay an enormous down payment is an advantage, especially if you still have to pay closing costs. Avoiding or reducing your down payment means you have savings to fall back on when emergencies arise.
It isn’t necessarily a better financial decision to put more money down than less. Making the full 20% down payment and avoiding PMI isn’t ideal if it means emptying your savings account. Take a close look at your finances and make sure you explore all your options before putting money down on a house.
What are my options if I don’t qualify for a low money down loan?
An alternative to low money down loans is down payment assistance (DPA). If putting money down on a house is a huge hurdle for you but you can’t qualify for a government-backed loan, a DPA might be the right solution. The requirements for these grants or second liens may vary, so it’s well worth looking into your DPA options to see what you can qualify for.
Rocket Mortgage accepts certain third-party down payment assistance.
The Bottom Line
Government-backed USDA and VA loans can allow you to buy a home with $0 down. The fact that these loans are backed by the federal government allows lenders to be more lenient with down payment requirements. Both you and your home must meet USDA loan standards to qualify for a mortgage, and you must meet service requirements with a VA loan.
You may also be able to get a conventional loan with a low down payment. Freddie Mac’s Home Possible® or Fannie Mae’s HomeReady® program offers lower monthly payments toward your mortgage insurance and loans with 3% down. You can also get a government-backed FHA loan with 3.5% down, which can be a great option if you have bad credit.
Ready to take the next step toward buying a house? Apply for a mortgage today.
1 Client will receive $1,250 credit towards down payment if the qualifying income is greater than 50% and less than or equal to 80% of the area median income OR $2,500 if client’s qualifying income is less than or equal to 50% of the area median income. Minimum FICO of 620 is required. Maximum LTV of 97% or 105% with DPA Second Lien. Maximum DTI is 45-50%, as determined by LPA decision. Offer valid on primary residence only. Offer valid on purchase transactions only. Home Possible Investor loan level price adjustments (LLPA) caps may apply. Offer is not valid for correspondent channels or Schwab Channel Products. Client is required to complete 1:1 Homebuyer Education Course with GreenPath facilitated by Homeownership Preservation Foundation (HPF). The course has a fee of $99 that must be paid out of pocket by the client at the time of their counseling. Additional required documents include eligibility certification, housing counseling completion certificate, and course receipt all provided to the client from Homeownership Preservation Foundation through email. Offer is nontransferable. Offer cannot be applied retroactively. Offer may not be redeemed for cash, and no change will be given if the discount amount exceeds costs otherwise due. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. This is not a commitment to lend. Additional restrictions/conditions may apply.
Take the first step toward the right mortgage.
Apply online for expert recommendations with real interest rates and payments.
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