How To Buy A House With No Money Down

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. Rocket Mortgage^® doesn't offer USDA loans at this time.

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.

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.

VA Loans

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 2.15% of your loan value and in lieu of mortgage insurance. For any subsequent uses of a VA loan, the funding fee is 3.3%.

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.

USDA Loans

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 41%.

Within that, the portion of your income dedicated to making your house payment – including property taxes, homeowners insurance and any applicable homeowners association dues – should be no higher than 29%. You should have a qualifying FICO^® Score of at least 640 for the best chance of qualification.

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.

ONE+ By Rocket Mortgage

ONE+ by Rocket Mortgage is a program that allows you to put 1% down while receiving a 2% grant from us. You can make a down payment of up to 3% and still receive the grant. 

To qualify for this program, there are a few things you should know:

• Your income can be no higher than 80% of the median in the area you're looking to buy. Fannie Mae has a lookup tool.
• You need a qualifying credit score of 620 or higher.
• This may only be used to buy single-unit primary residences.
• Your initial down payment must be no higher than 5% after our 2% grant is added.
• The maximum loan amount is $350,000.

Other Conventional Loans

If you don't qualify for the above, there are other options available to you. This includes additional opportunities for a conventional loan.

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 PMI requirement.

Your lender will usually 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. Both loans also come with a loan level price adjustment (LLPA) credit of 1% of the loan amount up to $3,500. If the loan is below $200,000, the credit will be $2,000 as opposed to 1%. 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 BorrowSmart^® Access^SM

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.

Freddie Mac BorrowSmart Access is one such program, allowing those in one of 10 eligible metropolitan statistical areas to receive $3,000 in down payment assistance.