How to Buy a Home Without a Down Payment

If you’ve been waiting for home prices to go down soon, you’re also probably wondering: How can anyone afford a down payment in today’s expensive housing market? 

While most experts recommend forking over 20% of the purchase price upfront, certain buyers are eligible to purchase a home without any down payment. You’ll have to consider the drawbacks and determine if it’s the right move for your finances.

What are no-down-payment mortgages?

A no-down-payment 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, these options usually come with a higher interest rate and steeper monthly payments.

Also, since you’re putting down less cash upfront, you’ll pay more in the long run from taking out a larger loan that racks up more interest. That’s why most buyers don’t take this route. In 2024, first-time buyers typically made a down payment of 9%, according to the National Association of Realtors.

Can you get a mortgage with no down payment?

Getting a zero-down-payment mortgage is possible but not easy. Most mortgage lenders and programs require a borrower to contribute something, even as little as 3%, to buy a house. (More on low-down-payment options below.) 

If you do qualify, there’s a trade-off: You’ll probably have a higher interest rate than you would if you contributed some funds to a down payment. With a larger home loan, that’s more risk for the lender, and that lender often compensates with an elevated rate. 

Also, a no-down-payment mortgage doesn’t mean you get the keys to your home without handing over any money. Every buyer needs to budget for closing costs, which typically total between 2% and 5% of the home’s purchase price.

Advantages of a no-down-payment mortgage

By not having to worry about a down payment, you’ll get the benefit of owning a home and beginning to accumulate equity in the property. For example, rather than paying a landlord rent for the next 12 months, you could make 12 mortgage payments that help chip away at the principal balance. 

Another upside to skipping a down payment is that you’ll be able to keep more money in your bank account for homeownership expenses, such as maintenance, insurance and upkeep.  

Disadvantages of a no-down-payment mortgage

A zero-down mortgage comes with immediate downsides, especially if you’re hoping for a low monthly mortgage payment. Let’s say you buy a $400,000 home with a 5% down payment ($20,000 upfront). Assuming you have a 7% mortgage rate, your monthly payments for principal and interest would be just over $2,528. If you put down nothing toward the down payment, those payments jump to over $2,661 each month. 

If you’re thinking about a no-down-payment mortgage because you don’t have a steady income or savings, consider the risks for your long-term finances if you’re unable to pay off your mortgage debt. Take a look at your budget to see if you can make some adjustments. The more you put down now, the less you’ll pay in the long run.

What are the pros and cons of a mortgage with no down payment?

If you’re looking at zero-down home loans, weigh the advantages and drawbacks before choosing this route.

Types of zero-down mortgages

VA loans 

For eligible service members and veterans of the armed forces, a Veterans Affairs loan comes with big benefits, including no minimum credit score requirements and no initial down payment. However, if you make a down payment, it 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 loans

The US Department of Agriculture supports prospective homebuyers who are looking in eligible rural areas with loan options that don’t require any money down. While USDA loans don’t have a minimum credit score requirement, you’ll find that most mortgage 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 Randolph-Brooks Federal Credit Union andhttps://www.nasafcu.com/personal/mortgages-equity/mortgages/mortgage-features/mortgage-options-folder/zerodownUnited 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 such as TD Bank and Regions offer zero-down mortgage loans specifically geared toward qualifying medical professionals. 

What types of low-down-payment mortgage options are available?

There are many ways to buy a home with a small down payment. If you don’t qualify for a no-down-payment loan, look into these options:

Conventional 97

Better known as Fannie Mae‘s HomeReady 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 is reserved for first-time homebuyers with very good to exceptional credit scores.

FHA loan

If you have a credit score of 580 or higher, you’ll be in the running for a https://www.cnet.com/personal-finance/mortgages/advice/fha-loans-may-save-you-money-heres-how-they-work/ with a down payment of 3.5% of the purchase price. FHA loans are mortgages backed by the federal government. While the Department of Housing and Urban Development establishes the limits and requirements for FHA loans, a mortgage lender might add their own specific conditions. Depending on your lender, there might be differences in eligibility requirements for government-backed loans. 

Fannie Mae HomeReady

Fannie Mae’s HomeReady program is designed for low-income borrowers – unlike the Conventional 97 option. You’ll need to earn 80% or less of the area median income. This program also currently offers a $2,500 borrower credit, which can help ease the upfront financial burden of buying a home.

Freddie Mac Home Possible

Freddie Mac’s Home Possible shares many similarities with Fannie Mae’s low-down-payment loan program. You’ll need to qualify as a low-income borrower (use this tool to find out). If you qualify, 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 down payment. The program has a sweat equity option for down payment costs. 

1% down payment programs

As more aspiring homeowners have struggled to save in a challenging economy, some lenders have started offering 1% down payment programs. These do exactly what the name implies: Buy a home with 1% of the purchase price. Rocket Mortgage is the biggest name in the mortgage business to offer the option, but plenty of smaller names, such as Union Home Mortgage and American Pacific Mortgage, have launched similar programs. 

FAQs

Start by researching what’s available via your state housing authority. Most states have mortgage 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 check the income limits and review other requirements, such as completing a homebuyer education course.

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 lower credit scores, like 500.

A 20% down payment is the easiest way to avoid paying for private mortgage insurance. But if you don’t have much saved right now, amassing 20% of a home’s purchase price is going to take a long time – particularly if home prices continue rising. You’re likely better off making a smaller down payment and getting rid of PMI once you reach 20% equity. 

First-time buyers typically make a down payment of 8% of the purchase price, according to the National Association of Realtors . Repeat buyers make much bigger down payments – typically 19% of the purchase price – but that’s often because they are able to leverage the equity they accumulated in their existing home into a new property.