For many aspiring homeowners, the biggest obstacle to purchasing a home is the down payment.
Traditional mortgages often require buyers to provide a substantial sum up front, which can mean years and years of saving. But is it possible to get one with no money down? The short answer is yes! Explore the various loan programs that can make homeownership more accessible and whether this route is the right choice for you.
Zero-down mortgage options
While most conventional loans necessitate a down payment, certain government-backed ones allow qualified buyers to purchase a home with no money down.
VA loans
Backed by the US Department of Veterans Affairs (VA), these loans are available to eligible veterans, active-duty service members, and some surviving spouses and come with competitive interest rates and no private mortgage insurance (PMI) requirements. While there is typically a funding fee between 1.25 and 3.3 percent of the borrowed amount, this can be rolled into the loan.
USDA loans
The US Department of Agriculture (USDA) offers zero-down loans for low- and moderate-income buyers purchasing a home in designated rural areas. They feature low interest rates but do demand an up-front guarantee fee of 1 percent and an annual fee of 0.35 percent.
Low down payment alternatives
If you don’t qualify for a zero-down loan, there are still ways to buy a home with a low down payment.
FHA Loans
Those who have a credit score of at least 580 may be able to get a Federal Housing Administration (FHA) loan with a down payment as low as 3.5 percent. This option is particularly popular among first-time homebuyers because of the more flexible credit and income requirements. Note, however, that you will have to pay an annual mortgage insurance premium (MIP), typically incorporated into your monthly mortgage payments, for the life of the loan with less than 10 percent down.
Conventional loans
Some conventional loan programs, such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, allow qualified buyers to put down as little as 3 percent. These loans generally require PMI until you reach 20 percent equity.
Down payment assistance programs
Many state and local housing agencies offer down payment assistance (DPA) programs that provide grants or low-interest loans to help buyers cover their up-front costs. They are often designed for first-time buyers or those with moderate incomes.
Pros and cons of no money down
Before committing to a zero-down loan, it’s important to weigh the benefits and drawbacks.
Pros
- Faster homeownership: You can buy a home sooner without having to save for a large down payment.
- Preserved savings: You can keep your savings intact for emergencies, home repairs, and other financial goals.
- Potential investment growth: If home values rise, you can start building equity immediately.
Cons
- Higher loan amount: With no down payment, your loan balance will be larger, leading to higher monthly payments.
- Mortgage insurance costs: Some zero- and low-down-payment loans require mortgage insurance, adding to your expenses.
- Potential for negative equity: If home values decline, you could owe more than your home is worth.
Is a zero-down mortgage right for you?
Buying a home with no money down can be a great option for those who qualify, but it’s essential to consider your financial situation. If you have a stable income, good credit, and plan to stay in your home long term, a zero-down mortgage could help you achieve homeownership faster. However, if you prefer lower monthly payments and greater financial flexibility, saving for a down payment may be a smarter move.
Before making a decision, consult with a mortgage professional to explore your options and determine the best path toward homeownership. With the right strategy, you can find a financing solution that fits your needs and budget.
