If you’re thinking about buying a house right now, you’re likely wracking your brain figuring out how you’ll start paying for it. If you’re a first-time homebuyer, you’re probably dealing with costly rent (and other costly expenses, thanks to inflation), which makes setting aside funds for a down payment difficult.
Don’t let fears of not being able to make a down payment prevent you from pursuing your dream of homeownership. It’s possible to get a mortgage without a down payment -- or with a very small one. Read on to learn how to do so before you start comparing mortgage rates.
What are no-down payment mortgages?
Just as it says, a no-down-payment -- or zero down -- mortgage doesn’t require you to put any money toward the purchase price of a home. Instead, you can borrow up to 100% of the price. However, it doesn’t mean your bill, upon closing your home, is zero. There may be other fees and closing costs that you’ll have to cover out of your pocket.
Can you get a mortgage with no down payment?
Yes, it’s possible, but it’s not easy. Most mortgage programs require that the borrower contributes something to the purchase of the home. You’re better off looking for low-down payment mortgages, which are more common. However, if you’re set on not spending any cash upfront, there are four common zero-down payment options.
Types of zero-down mortgages
VA loan: For eligible service members and veterans of the armed forces, a VA loan comes with big benefits, including no minimum credit score requirements and no down payment. However, making a down payment can reduce the cost of your VA funding fee, a one-time fee that’s paid to the VA in lieu of mortgage insurance. With no down payment, the fee will be 2.15% of the purchase price. If you can put down 5% of the purchase price, that fee shrinks to 1.5%.
USDA loan: The US Department of Agriculture aims to support prospective homebuyers who are looking in eligible rural areas with loan options that don’t require any money down. While the USDA doesn’t have a minimum credit score requirement, you’ll find that most lenders want to see a score of at least 640 for this type of mortgage.
Credit union loans: Zero-down mortgages aren’t available at all credit unions, but you will stumble upon them at certain membership-based institutions, such as the NASA Federal Credit Union. Look at local credit unions in your area to see if any of them offer these easy paths to home ownership.
Loans for medical professionals: With the high costs associated with completing a degree to work in the healthcare industry, some lenders offer zero-down mortgages specifically geared toward qualifying medical professionals. As you work to pay off your student loan debt from med school, this can be a way to help you become a homeowner.
What are the pros and cons of a mortgage with no down payment?
If you’re looking at no-down payment home loans, think about the advantages and drawbacks before choosing this route to buying a home.
| Pros | Cons |
| You don’t have to worry about cutting all your costs to save. | You’ll spend more – now and in the long run. |
| You can stop renting sooner. | You’ll pay in other ways, too. |
| You can keep a bigger safety cushion. | You may lose out to other buyers. |
Pros of a no-down payment mortgage: The upside of not worrying about a down payment delivers immediate benefits. Instead of carving out ways to cut your expenses and work to save for a down payment over the next year (or much longer), you can jump right into the real estate market. Plus, you’ll be able to keep all that cash in your bank account and enjoy the peace of mind that comes with a healthy reserve.
Cons of a no-down payment mortgage: While you won’t pay any costs now, you’ll certainly pay for that privilege in the long run. Because you’re borrowing more, you’ll pay substantially more in interest over the course of the loan.
Consider the math on a property valued at $275,000: With a 3% down payment, you would pay just over $369,000 in interest over the next 30 years. Without a down payment, those lifetime interest charges jump to more than $380,000. However, that math assumes you’ll have the same interest rate, which is unlikely. A lender is likely to increase your interest rate to account for the increased risk.
One other potential drawback of a no-down payment mortgage: Sellers might prioritize an offer from a buyer with a preapproval letter that spells out how they’ll be ponying up their own funds for a portion of the down payment.
What types of low-down payment options are available?
There are lots of ways to buy a home with a small down payment that represents a tiny fraction of the purchase price. If you don’t qualify for a no-down payment loan, look into these options:
Conventional 97: Better known as Fannie Mae’s and Freddie Mac’s 3% down, 30-year fixed rate mortgage loan, the “97” indicates that a lender will loan you 97% of the home’s value, or a loan-to-value ratio of 97%, meaning you’ll only need 3% for your down payment. This offer tends to be reserved for first-time homebuyers who have very good to exceptional credit.
FHA loan: If you have a credit score of 580 or higher, you’ll be in the running for a Federal Housing Administration loan with a down payment of 3.5% of the purchase price. FHA loans are considered secure mortgages because they’re backed by the US government. The Department of Housing and Urban Development establishes the limits and requirements for FHA loans, however a lender might add their own specific conditions, so there might be differences in eligibility requirements depending on your lender.
Fannie Mae HomeReady: Fannie Mae’s HomeReady program comes with a slightly smaller minimum down payment requirement than FHA loans -- 3% -- but the key difference is that you can eventually stop paying for mortgage insurance. That’s not possible with most FHA loans, which have lifetime mortgage insurance requirements.
Freddie Mac Home Possible: Freddie Mac’s Home Possible shares many similarities with Fannie Mae’s low-down payment program. You’ll only need 3% of the purchase price. Plus, if you’re comfortable with construction, you may be able to contribute your own labor skills to cover the value of that down payment. The program has a sweat equity option for down payment costs. Sweat equity refers to the labor and materials paid by the borrower before closing on a property.
Good Neighbor Next Door: If you’re a firefighter, teacher, law enforcement officer or emergency medical responder, you might be able to purchase a home for a 50% discount through the federal government’s Good Neighbor Next Door program. The down payment price tag will make you do a double take: $100. There are requirements regarding the property location, but it’s a great option for qualifying applicants.
Energy Efficient Mortgage: If you qualify for a mortgage, then you’re eligible for an energy-efficient mortgage, or EEM. This mortgage enables you to save on your utility bills and can help you afford energy-efficient improvements to your home -- saving you money that you can allocate to your monthly mortgage. The mortgage is insured by the Federal Housing Administration, which includes the costs of the energy upgrades you make to your home. You can use an EEM to purchase a new home or refinance your existing mortgage.
The bottom line
There are ways to get a mortgage without handing over every dollar you have for a down payment. Before you apply for a no-down payment mortgage, it’s important to understand the implications. You’re going to borrow more, which means a higher monthly payment now and a larger amount of total interest in the long term. What’s more, you’re going to have fewer options of loan programs as not all lenders offer mortgages with no money upfront. Consider low-down payment programs, too, for a wider range of choices.
FAQs
Start by researching what’s available via your state housing authority. Most states have programs that help low- and moderate-income borrowers secure funds to cover a portion of the down payment and closing costs. In most cases, you’ll need to satisfy requirements for earning a maximum amount of income, staying within the purchase price limits and completing a homebuyer education course.
The average rates for 30-year mortgages have been hovering between 6% and 7% so far in 2023. Rates move up and down every day, so it’s important to keep an eye on the market.
There’s no magic credit score number that will get you a low- or no-down-payment mortgage. Credit score requirements vary from lender to lender. Conventional loans will require a credit score of at least 620, while FHA loans may be available with a score as low as 500.