Buying a home with no money down is more common than you might think. Many people assume they need to save a large down payment before they can become homeowners. In reality, there are several loan programs that can help you buy a house with little or no upfront cash.
The old rule of putting 20% down is not the standard anymore. In fact, most first-time homebuyers today put down far less. If you want to buy a home but feel stuck because of the down payment, this guide will show you the options available and how to choose the right path for your situation.
Is it possible to buy a house with no money down?
Yes—and many buyers are already doing it. While the old 20% rule still lingers in people’s minds, it no longer reflects reality.
Recent data shows that first-time homebuyers make a median down payment of just 9%. Many loan programs allow you to buy a home with 3% down or even no down payment at all.
The 20% down payment is not required for most loans. But this outdated belief still causes many would-be buyers to put off homeownership longer than they need to.
Pros & Cons of No Down Payment Mortgages
If you can afford to put 20% down, it can still be a smart choice. But no down payment and low down payment loans give many buyers an opportunity to purchase a home sooner. Here is what you should know before deciding.
Pros
- Buy a home sooner: No down payment loans can help you become a homeowner without waiting years to save for a large down payment.
- Keep more cash on hand: Saving for a home is not the only financial goal. A lower or zero down payment lets you keep money available for moving costs, home repairs, or an emergency fund.
- Take advantage of special programs: Many government-backed and state-run programs offer favorable terms for first-time buyers with low or no down payments.
Cons
- Higher interest rates: Lenders may charge a higher interest rate on loans with low or no down payments, increasing your overall borrowing costs.
- Higher closing costs: A smaller down payment results in a larger loan amount, which can raise your closing costs. In some areas, sellers may help cover these costs.
- Private mortgage insurance: Private mortgage insurance is required on most conventional loans with less than 20% down. It protects the lender but increases your monthly payment. It typically costs up to 1% of your loan amount per year but can be removed once you build 20% equity.
No down payment mortgages can help you buy a home faster, but they often come with higher costs over time. Weigh both sides carefully to decide what works best for your financial situation.
Best No Down Payment Mortgage Options
If saving for a down payment feels out of reach, you still have options. Several programs can help you buy a home with no money down. Here are the most common ways to do it:
1. VA Loans
VA loans offer 100% financing for eligible military service members, veterans, and some surviving spouses. You do not need private mortgage insurance, and interest rates are typically lower than conventional loans. A one-time VA funding fee applies, but can be rolled into your loan.
2. Navy Federal Credit Union Loans
Navy Federal offers a no down payment loan program for members, with no private mortgage insurance required. The funding fee is lower than a VA loan, and loans are available up to $1 million. Membership is open to military members, veterans, and their families.
3. USDA Loans
USDA loans provide 100% financing for homes in eligible rural and suburban areas. The program is geared toward low- and moderate-income buyers. To qualify, your income must fall within program limits, and the home must be located within USDA-approved zones.
4. Lease-Option
With a lease-option, you rent a home with the option to buy it later at an agreed-upon price. A portion of your monthly rent may count toward your future purchase. This option works well if you need more time to save or improve your credit before buying.
5. Seller Financing
In seller financing, the seller acts as the lender. You make payments directly to the seller, bypassing traditional mortgage lenders. This option often works best when you have an existing relationship with the seller or the property is harder to finance through a bank.
6. Crowdfunding
Crowdfunding lets you raise money from family, friends, or your broader network to help cover a down payment or purchase costs. Some online platforms specialize in homebuying campaigns. This option works best if you have strong personal connections willing to contribute.
7. Shared Equity Agreements
Shared equity agreements involve an investor providing all or part of your down payment in exchange for a share of the home’s future value. When you sell or refinance the home, the investor receives a return based on their share of the equity.
8. Housing Assistance Programs
Many state and local programs offer down payment and closing cost assistance in the form of grants or low-interest loans. Eligibility usually depends on income, location, and first-time homebuyer status. These programs can pair well with low down payment mortgages.
See also: Best Home Loans for Low-Income Borrowers
Best Low Down Payment Mortgage Options
If buying a home with no money down is not an option for you, don’t worry. Several loan programs allow you to buy a home with as little as 3% down. Here are some of the best low down payment mortgage options to consider.
1. 97% Loan-to-Value (LTV) Mortgages
Fannie Mae and Freddie Mac both offer 97% LTV mortgage programs for first-time homebuyers. These conventional loans require just a 3% minimum down payment and private mortgage insurance.
Key guidelines include:
- Minimum credit score of 680
- At least one borrower must be a first-time homebuyer
- Manufactured housing is not eligible
- Gifts, grants, and other funds can be used toward the down payment
2. Federal Housing Administration (FHA) Loans
FHA loans are government-backed mortgages that offer flexible requirements, making them popular with first-time buyers and those with less-than-perfect credit.
Here is what you need to know:
Credit score and down payment:
- 500 to 579 credit score: 10% down payment required
- 580 or higher credit score: 3.5% down payment required
Seller contributions:
- Sellers can contribute up to 6% of the home’s purchase price toward closing costs.
Mortgage insurance:
- Mortgage insurance is required for all FHA loans. You can refinance to a conventional loan later to remove it once you build 20% equity.
Debt-to-income (DTI) ratios:
- FHA loans accept higher DTI ratios than many conventional loans. While 43% is the general limit, exceptions are possible for borrowers with strong financial profiles.
3. HomeReady Mortgage
HomeReady is a Fannie Mae program designed for low-to-moderate-income borrowers. It requires only 3% down and offers flexible underwriting standards. It is a strong option for first-time buyers or those with limited credit history.
4. Home Possible Mortgage
Home Possible, offered by Freddie Mac, also requires a 3% down payment and is geared toward low-to-moderate-income borrowers. Like HomeReady, it provides flexible underwriting to help more buyers qualify.
5. State and Local Homebuyer Assistance Programs
Many states and local governments offer down payment and closing cost assistance through grants or low-interest loans. These programs often have income limits, property location requirements, and first-time buyer eligibility rules. Be sure to check what is available in your area.
How to Improve Your Finances Before Buying a House
Before you start house hunting, it is important to get your finances in order. Taking these steps can help you qualify for better mortgage terms and make homeownership more affordable.
Improve Your Credit Score
- Check your credit report for errors and dispute any inaccuracies.
- Pay all bills on time and reduce outstanding debt.
- Keep credit card balances low and avoid opening new credit accounts.
- If possible, request a credit limit increase—but do not increase your spending.
Create a Budget
- Track your income and expenses to identify your spending habits.
- Set realistic limits for each expense category.
- Prioritize saving for a down payment, closing costs, and an emergency fund.
- Review your budget regularly and adjust as needed.
Manage Your Debt
- Focus on paying off high-interest debt first.
- Pay more than the minimum on all debts when possible.
- Explore debt consolidation or refinancing to lower your interest rates.
- Avoid taking on new debt before applying for a mortgage.
Factor In the Full Cost of Homeownership
- Plan for property taxes, homeowners insurance, utilities, and maintenance costs.
- Include any homeowners association (HOA) fees if applicable.
- Budget for furnishing and any needed updates to the home.
- Prepare for potential increases in expenses, such as higher property taxes over time.
How to Choose the Best Mortgage for Your Needs
The right mortgage depends on your budget, how long you plan to stay in the home, and your long-term financial goals. Here are key factors to weigh when comparing options.
Fixed-Rate vs. Adjustable-Rate Mortgages
- Fixed-rate mortgage: The interest rate stays the same for the life of the loan. Monthly payments are predictable, which helps with budgeting.
- Adjustable-rate mortgage (ARM): The interest rate is fixed for an initial period (usually 5, 7, or 10 years), then adjusts periodically. Initial payments are often lower, but the rate can increase over time.
For most first-time buyers, a fixed-rate mortgage offers more peace of mind.
Mortgage Term: 15-Year vs. 30-Year
- 15-year mortgage: Lower interest rate, faster equity buildup, higher monthly payments.
- 30-year mortgage: Lower monthly payments, but more interest paid over the life of the loan.
Choose the term that best fits your monthly budget and financial priorities.
Mortgage Insurance Considerations
If you put down less than 20% on a conventional loan, private mortgage insurance will likely be required. Government-backed loans such as FHA, VA, and USDA have different insurance rules or fees. Be sure to factor these costs into your monthly budget.
Assess Your Long-Term Goals
Think about how long you plan to live in the home. If you expect to move within a few years, the flexibility of an ARM might make sense. If this is your forever home, a fixed-rate loan provides stability. Also consider how potential home value appreciation fits into your financial plans.
Steps to Take Before You Apply for a Mortgage
Once you know what type of mortgage might fit your needs, it is time to take action. Here is how to move forward.
Assess Your Financial Situation
Start by reviewing your monthly budget. How much can you realistically afford to spend on a mortgage payment? Use a mortgage calculator to estimate costs, including property taxes, insurance, and maintenance. Be sure to factor in any existing debt.
Get Pre-Approved
Before shopping for a home, get pre-approved by a lender. Pre-approval shows sellers you are a serious buyer and gives you a clearer idea of your budget.
You will need to provide income documents, bank statements, tax returns, and information on your credit score and debts.
Shop Around for the Best Mortgage
Do not settle for the first lender you find. Compare mortgage rates, fees, and terms from multiple lenders. This can save you thousands over the life of your loan.
Work With a Knowledgeable Real Estate Agent
A good agent will help you find homes that fit your budget and guide you through the buying process. Look for someone with experience in your local market.
Attend First-Time Homebuyer Classes
Many local agencies and nonprofits offer homebuyer education classes. These workshops can help you better comprehend the process and avoid common mistakes.
Save for Unexpected Expenses
Even with no down payment, homeownership brings upfront costs. Moving, repairs, and furnishings can add up quickly. Set aside cash for these expenses.
Build an Emergency Fund
Aim to save enough to cover three to six months of living expenses. An emergency fund provides a safety net if unexpected financial challenges arise.
Be Patient and Stay Focused
Buying a home takes time. Be prepared for setbacks and stay focused on your long-term goal. With careful planning, homeownership can become a reality—even without a large down payment.
Final Thoughts
Buying a home with no money down is possible, but it is not the right fit for everyone. Zero down payment loans can help you get into a home faster, but they often come with higher costs over time.
Take the time to weigh your options carefully. Look at your full financial picture, consider how long you plan to stay in the home, and think about your long-term goals. With the right plan and preparation, you can move forward with confidence—whether you choose a no down payment mortgage or decide to save for a larger one.
