Saving for a down payment is often the biggest hurdle for first-time homebuyers. The good news is that you don’t need to put 20% down to buy a home.
In fact, you may be able to buy a home with no down payment if you have served in the military, are a rural homebuyer, are a member of a credit union, or are eligible for 100% financing through certain mortgage lenders. Down payment assistance programs can also make it possible to buy a home with very little money out of pocket.
Find out more about no down payment mortgages and whether they are right for your situation.
No down payment mortgage options
There are two types of loans specially backed by the government that allow the purchase of a home with no down payment.
VA loans
If you or your spouse are eligible military service members or veterans, you may qualify for a VA loan guaranteed by the Department of Veterans Affairs.
What to expect: VA loans do not require a minimum down payment or private mortgage insurance, but you do have to pay a funding fee, which covers the cost of foreclosure should you default on the loan.
While the VA does not set a credit score or minimum income requirement, lenders do. The property also has to be your primary residence and meet the VA’s minimum safety standards.
USDA Loans
USDA loans are zero-down mortgages backed by the U.S. Department of Agriculture for low- and moderate-income homebuyers in eligible rural areas.
What to expect: While USDA loans do not technically require mortgage insurance, a guaranty fee is required, which protects the lender in the event of foreclosure.
It has no minimum credit score requirement, but lenders still typically require a score of at least 640.
Physician Loans
If you are a medical professional, you may qualify for a medical loan with no down payment.
What to expect: medical loans don’t require private mortgage insurance, often have flexible proof of employment requirements, and have a higher debt-to-income ratio because borrowers may have high medical school debt.
Other 100% mortgages
Public loans are not the only ones out there when it comes to no down payment mortgage loans.
Some, but not all, lenders offer their own 100% mortgage financing. These loans are not common because of the risk involved for the lenders, as they stand to lose a lot of money if the mortgage is not paid and ends up being foreclosed on.
What to expect: Depending on the mortgage lender, they may require that the loan be for your primary residence, the area in which you live, or that you have a good credit rating. If your mortgage lender is a credit union, you must be a member.
Advantages and Disadvantages of No Down Payment Mortgage Loans
Although you may feel like you’ve hit the lottery with a no down payment loan, there are advantages and disadvantages:
Advantages
- You don’t have to save as much money.
- You can become a homeowner sooner.
- You’ll have more money in your pocket for improvements or expenses.
Disadvantages
- You’ll have little or no equity in your home for the first few years of ownership.
- You may pay higher mortgage insurance premiums and monthly payments, interest or fees.
- You may have to invest money to cover transaction fees or the deposit.
