Unlocking Homeownership: How to Buy a House with No Money Down

Many first-time homebuyers struggle to save enough for a down payment, but there are ways to achieve the goal of homeownership with little to no money down. 

In this guide, we’ll review loan options that minimize your down payment. We’ll also explain financing strategies and down payment assistance programs that can help you land your dream home.  

• The most common loan programs that don’t require a down payment are VA loans and USDA loans; both have specific guidelines to qualify.
• Conventional loans and FHA loans are alternatives that carry low down payment requirements.
• Other options to skip or minimize your down payment obligation include a seller credit, lender credit, down payment gift and down payment assistance programs.

Yes, buying a home with no money down is possible, provided that you qualify for the right loan program.

“Most people can buy a house with no money down if you meet a few basic parameters, follow a few simple rules and explore different programs that might be available to you,” says Dayten Rynsburger, chief revenue officer at Niche Capital CO, a lender in Irvine, California.

The key is to determine what type of assistance or loan programs you can qualify for based on your home-buying criteria, income, financial standing and background.

The most common zero-down mortgages are VA loans and USDA loans. 

“When you see a zero-down mortgage, it means the lender will finance 100% loan to value,” says Rynsburger. The borrower doesn’t have to put money down to buy the home but is usually responsible for loan costs and closing fees.

Sometimes, the lender will finance more than 100% of the purchase price to help with repair costs or other associated fees, but only in certain programs. The lender often recoups the borrower's lack of a down payment through a higher mortgage rate or other fees.

The most common home loans that require no down payments include VA and USDA home loans.

“The number one no money down loan program is from the VA,” says Rynsburger.

Not only does the Department of Veterans Affairs offer a no-down payment loan to qualifying active military or veterans (and their surviving spouses), but they will even lend up to 110% of the property purchase to help with qualifying renovations and don’t charge private mortgage insurance (PMI).

“PMI is an insurance premium built into your mortgage payment that will reimburse the lender if and only if you default,” Rynsburger explains. PMI is normally required on conventional loans with less than a 20% down payment.

VA Loan Requirements:

• A home loan Certificate of Eligibility (COE) that shows you meet VA requirements for time served. This varies by date but normally requires at least 24 months of service.
• You must meet the lender’s credit and income standards. The VA does not have credit score requirements, but most lenders typically require a credit score of 620 or higher.
• The home you are purchasing must be your primary residence. It can be a single-family home, a condo, a townhouse, a manufactured home, land, new construction or a multi-family dwelling of up to four units. 

If you plan to buy in a rural area, you might qualify for a USDA loan. The U.S. Department of Agriculture backs these loans, which allow you to purchase a property with no money down.

USDA Loan Requirements:

• You must be a U.S. citizen, permanent resident or foreign national who does not qualify for a conventional mortgage. 
• The property must be your primary residence and in a qualifying area. Approved property types include single-family homes, condominiums, townhomes, manufactured homes, land, new construction and multi-family dwellings with up to 4 units.
• Households that make less than 115% of the median income for the area. You can see median income by area here.
• You must meet the lender’s credit and income requirements.

USDA loans do not have PMI. However, there is still mortgage insurance, known as USDA rural mortgage insurance or the USDA Guarantee Fee. In 2023, this fee was 1% of the loan amount upfront and 0.35% of the loan's balance, calculated yearly and paid monthly as part of the mortgage.

If you don’t qualify for a zero-down mortgage, you still have options within reach. Conventional loans and FHA home loans are low down payment options that are widely available to many homebuyers.

While a conventional loan may have required 20% down in the past, many lenders can offer this type of loan with as little as 3% down. 

Common Requirements for a Conventional Loan:

• Credit score: To qualify for a conventional loan, you’ll usually need a minimum credit score of 620.
• Down payment: The amount you’ll need to pay for a home loan varies. You can qualify for some programs with as little as 3% down, though a jumbo loan will require at least 10%. 
• If you put down less than  20% on a conventional loan, you must pay for private mortgage insurance (PMI). 

These loans are backed by the Federal Housing Administration (FHA) and are designed to make mortgages more affordable for many buyers.

Requirements for an FHA Loan:

• You must have a credit score of 580 to qualify with a 3.5% down payment; if you put 10% down, you may be able to secure FHA financing with a credit score of 500.
• The property must be your primary residence.
• Steady income and proof of employment are required.

Fannie Mae HomeReady Loans

Fannie Mae’s HomeReady Loans require a 3% to 5% down payment and are eligible to any buyer or homeowner who wants to refinance. You must meet the following requirements to qualify:

• Make 80% or less of the area’s median income.
• The property bought or refinanced must be your primary residence and single-family property, which includes condos, co-ops, planned unit developments (PUDs) and some qualifying mobile homes.
• A credit score of 620 or more.

Freddie Mac Home Possible Loans

The government-sponsored entity, Freddie Mac, also has a low-down payment program that requires just 3% for low-income homebuyers.

This program is unique because it allows you to have other financed properties. Non-occupying co-borrowers can also help you qualify or contribute to the down payment for single-family properties. The requirements to qualify include:

• Earn no more than 80% of the area’s median income.
• No credit score requirement; even those without a credit score might qualify.
• The property purchased or refinanced must be your primary residence, including qualifying single-family homes, condos, co-ops, PUDs, and some qualifying mobile homes.

Good Neighbor Next Door Loan Program

The US Department of Housing and Urban Development (HUD) has a Good Neighbor Next Door Loan Program for law enforcement officers, teachers, firefighters and emergency medical technicians.

Qualifying individuals can purchase a home listed for sale exclusively in the Good Neighbors program for as much as 50% off the sale price. The homes are in revitalization areas and are only listed on the program’s site for seven days.

The home is sold to bidders through a lottery system if there are multiple offers. The discount is added on as a forgivable second mortgage. The discounted purchase price does not need to be paid back if the home is your primary residence for three years.

Piggyback Loans

A piggyback loan isn’t a specific program like the others mentioned above. It’s a second mortgage or home equity line of credit (HELOC) that you use as your down payment amount. A piggyback loan allows you to buy a house with no money down and avoid paying PMI if the balance is at least 20% of the home’s sale price. The downside is that you now have two loans that likely carry different interest rates and terms.

No matter how you finance your home, you must have strong credit and be in good financial standing. “Lenders will have different requirements for credit, but 600 is the lowest you’ll typically see,” says Rynsburger.

The better your credit score, the better your terms will be, even when you buy a house with no money down. Rynsburger advises pulling your credit before applying to any programs to inform you of your financial standing and assess anything holding you back on your credit report.

“You can increase your credit score quite a bit by doing small things,” Rynsburger says. “Email or call past creditors and get past debts, missed payments, or cards not in use removed from your report.”

Rynsburger emphasizes the importance of full-time employment to secure a mortgage with favorable terms. Qualifying for a zero-down mortgage when you are self-employed is possible, but it’s also more difficult and often comes with less favorable financing terms.

Your debt-to-income (DTI) ratio is another important factor lenders consider when approving a home loan. Your DTI compares monthly expenses and earnings. It is determined by dividing your monthly debts (such as car payments, credit cards and rent) by your monthly pre-tax income. 

A conventional loan typically requires a DTI of no more than 45%. Some lenders will accept a DTI as high as 50%, but most view a DTI of 36% as favorable.

If you don’t qualify for a zero-down mortgage, there are still options that help make homebuying more affordable.

Down payment assistance programs were created to help reduce the money a borrower needs to buy a home, which is often the biggest barrier to entry.

These programs are typically offered by the city, county, state or federal government. If you and the home meet certain criteria, they will provide money toward your down payment.

Money is typically provided in one of four ways:

• A grant that requires no repayment so long as you stay in the home for a specific period of time.
• A second mortgage that is repaid in addition to your monthly mortgage.
• A deferred loan that is repaid only when you move, sell or refinance.
• Forgivable loans that don’t need to be repaid so long as you stay in the home for a specific period.

Some programs offer a few thousand dollars in assistance, while others in more expensive housing regions like New York City or Seattle offer as much as $100,000. Almost all will require you to work with an approved lender and meet specific requirements.
For example, some county and city down payment assistance programs are exclusive to public sector employees such as teachers or firefighters. Other programs are exclusively for low-income households or minorities.

If you have a family member who is able and willing to give you funds for a down payment, you can put it toward your home purchase.

Gifts can only be granted by family, which can be defined by blood, guardianship, adoption or marriage. There has to be a clear paper trail proving who the funds came from and that the gift will not be repaid now or in the future. This is typically done with a gift letter.

If you choose to use a down payment gift, remember that you are responsible for paying taxes on the gift amount when you file your tax returns.

Another option is to request a seller credit to cover your closing costs. This isn’t always an option, but in a buyer’s market or with a motivated seller, you may be able to negotiate a credit as a part of the purchase contract.

A lender credit is another way to offset closing costs when buying a home. Typically, a lender credit eliminates closing costs but increases your interest rate. 

Rynsburger says that if a lender offers a 5% interest rate, “they would credit you back a certain amount of money to cover title and closing costs, which is typically around a few thousand dollars if you accept a 6% interest rate instead.”

In most cases, you’ll pay more interest over the life of the loan than the credit you receive at closing. However, this may be an option if you want to minimize your upfront costs.

If you’re struggling to save for a down payment, there may be a loan program that allows you to purchase with no money down. Make sure you can afford the home you are buying and are ready for the responsibilities of being a homeowner.

Owning a house comes with ongoing costs, including property taxes, insurance and maintenance. While your mortgage payment won’t change if you secure a fixed-rate loan, insurance costs and taxes will increase. You also need to make sure you can pay for routine repairs and upgrades to ensure the home remains safe.

How can I get money for a down payment? You can explore local and federal down payment assistance programs. You can also ask a relative for a down payment gift or tap into your savings. If you currently own a home, you may be able to take out a home equity line of credit (HELOC) to fund your down payment. 

Can I get an FHA loan with no down payment? No, all FHA loans require a down payment. If you have a credit score of at least 580, you can secure an FHA home loan with a down payment of 3.5%.

What is the minimum down payment for a mortgage? If you qualify for a VA loan or a USDA loan, you can purchase a home with no down payment. Conventional mortgages and FHA loans can be secured with down payments as low as 3% and 3.5%, respectively.

How much are closing costs? Closing costs are typically between 2% and 6% of the loan amount. However, they will vary by lender, loan program and location.

Does the buyer always pay closing costs? The buyer typically pays most of the closing costs in a real estate transaction. In some cases, you can request the seller credit or a lender credit to pay down the cost of these fees.

What credit score do I need to buy a house with no money down? The credit score you need to purchase a home with no money down will vary, depending on the lender. However, most lenders require a credit score of about 620. The better your credit score is, the better the terms of your loan will be.

What are down payment assistance programs? A down payment assistance program is a grant or loan that helps you make a down payment and pay closing costs on a home. There are typically eligibility requirements to qualify. For example, the program could be geared toward first-time homebuyers, public sector employees, or those in a specific income bracket.