Saving for a down payment is often the biggest roadblock for first-time home buyers. The good news is, you don’t need to put down 20% to buy a home.
In fact, you may be able to buy a house with no money down if you served in the military, are a rural home buyer, work as a doctor or another medical professional or qualify for 100% financing through certain mortgage lenders. Down payment assistance programs can also make it possible to buy a house with very little money out of pocket.
No-down-payment government loan options
There are two government-backed loans that allow you to buy a home with no down payment.
VA loans
If you or your spouse are a qualifying current service member or veteran, you may be eligible for a VA loan guaranteed by the Department of Veterans Affairs.
What to expect: VA loans require no minimum down payment or private mortgage insurance, but you do have to pay a funding fee, which helps keep the VA loan program running.
While the VA doesn’t set a minimum credit score or income requirement, lenders do. Most VA loan lenders require you to have a credit score of at least 620. The property also has to be your primary residence and meet the VA’s minimum safety standards.
» MORE: Best VA mortgage lenders
USDA loans
USDA loans are zero-down mortgages backed by the U.S. Department of Agriculture for low- and moderate-income home buyers in eligible rural areas.
What to expect: Although USDA loans don’t technically require a down payment or mortgage insurance, you are required to pay a guarantee fee of 1% of the total loan amount, which protects the lender in the event of foreclosure. You’ll also have to pay an annual fee of 0.35% of the loan amount for the life of the loan, plus a $25 technology fee to process the loan.
The USDA doesn’t have a minimum credit score requirement, but lenders often require a score of at least 640. You may still be able to qualify with compensating factors — such as large cash reserves or a low debt-to-income ratio — if your credit score is below 640.
» MORE: Best USDA mortgage lenders
DATA: What's the Homebuying Climate this month?
NerdWallet's Homebuying Climate Index puts a familiar weather label on how favorable conditions are for home buyers.
For September, our analysis puts the Climate Index at 53.5 out of 100, keeping the index in Partly Cloudy territory for the 50th straight month.
Read more about the factors affecting this month's index to gauge how they might affect your homebuying plans.
Other no-down-payment mortgage options
Alternatives can be harder to find, in part because financing an entire home purchase carries more risk for lenders. However, government loans aren’t necessarily your only option.
Lender-specific programs
Some, but not all, lenders offer their own 100% mortgage financing. These loans aren’t common because of the risk involved for lenders; they can lose a lot of money if you default on the mortgage and end up in foreclosure.
Still, a few lenders offer programs that can help eligible buyers finance a home without a down payment. For example, Navy Federal Credit Union has a zero-down, 30-year fixed-rate mortgage that doesn’t require private mortgage insurance (PMI). The loan comes with a 1% origination fee and a 1.75% upfront funding fee. The funding fee can be rolled into the loan. Membership is limited to eligible military members, veterans, defense contractors and their families.
Regions Bank offers its Affordable 100 mortgage program, which provides up to 100% financing on primary residences without PMI. The program is designed for low- to moderate-income borrowers and buyers in eligible communities within Regions’ service area.
What to expect: Depending on the mortgage lender, they may require that the loan is for your primary home, that you live in a certain area or that you have an excellent credit score. If your mortgage lender is a credit union, you’ll need to be a member.
Physician loans
If you are an eligible medical professional, you may qualify for a physician loan with no down payment. Generally speaking, physician home loan programs are available to licensed and practicing medical doctors (M.D., D.O.) and dentists (D.D.S., D.M.D.). Medical residents, fellows and other medical professionals — such as pharmacists and veterinarians — may also qualify.
What to expect: Physician loans don't require private mortgage insurance, and typically they have flexible proof of employment requirements and accommodate higher debt-to-income ratios because of the large amount of medical school debt the borrower may have. They usually need to be used for your primary home.
Pros and cons of no-down-payment home loans
While you may feel like you won the lottery with a no-down-payment loan, there are advantages and disadvantages:
Pros
You don't have to save up as much money.
You can become a homeowner sooner.
You'll have more cash in your pocket for upgrades or expenses.
Cons
You'll have little or no equity in your home for the first few years of homeownership.
You may have to pay mortgage insurance, higher interest rates or additional fees.
You still have to pay closing costs.
Low-down-payment mortgage options
If you don’t qualify for a no-down-payment mortgage, the next best thing could be a loan that requires a small down payment. The minimum requirements vary depending on the type of mortgage and the lender you choose.
FHA loans
FHA loans, which are backed by the Federal Housing Administration, require a down payment of as little as 3.5% for borrowers with a credit score of 580 or greater. But if your score falls between 500 and 579, you will have to put down 10%.
What to expect: To qualify for an FHA loan, there are debt-to-income ratio requirements, and the property must meet the FHA’s minimum standards. You’ll also have to pay for FHA mortgage insurance.
» MORE: Best lenders for FHA loans
HomeReady and Home Possible loans
Some conventional mortgages, such as HomeReady and Home Possible loans, require as little as 3% down and are designed for low-income home buyers.
What to expect: Fannie Mae’s HomeReady mortgage has no minimum credit score requirement for loans approved through its automated Desktop Underwriter system, although manually underwritten loans generally require a score of at least 620.
With Freddie Mac’s Home Possible loans, you generally need a score of at least 660 for manually underwritten, fixed-rate purchase mortgages on one-unit properties, while loans submitted through its automated Loan Product Advisor system must receive an acceptable risk assessment.
Both programs require you to pay private mortgage insurance, however they allow you to cancel it when your equity reaches 20%. If all borrowers on the loan are first-time home buyers, at least one person has to take a homeownership education course to qualify.
Good Neighbor Next Door
If you are a teacher, police officer, emergency medical technician or firefighter, you may be able to find a home at a steep discount through the U.S. Department of Housing and Urban Development’s (HUD) Good Neighbor Next Door program.
The program gives eligible home buyers the chance to purchase a HUD-owned home for 50% off the list price. You must commit to living in the property as your primary residence for at least three years. Another perk: You’re only required to put $100 down.
What to expect: Even if you’re in a qualifying profession, Good Neighbor Next Door mortgages can only be used to buy foreclosed homes in designated revitalization areas. Homes are sold as-is without a warranty. The supply of houses is also extremely limited, so you may not be able to find a home that fits your needs.
Down payment assistance programs
Whether or not you qualify for a no- or low-down-payment mortgage, there are many state and local first-time home buyer programs that offer down payment and closing cost assistance. These may come in the form of:
Grants: Money for down payments or closing costs that doesn’t have to be repaid.
Forgivable loans: Second mortgages that are forgiven after a set period if you meet requirements, such as continuing to live in the home.
Deferred-payment loans: Second mortgages that generally don’t require repayment until you sell the home, refinance or reach another specified repayment trigger.
Low-interest loans: Affordable loans that you repay over time, spreading down payment and closing costs across several years.
